Integrated Reporting and

Corporate Governance

Corporate governance and corporate reporting are closely linked to

each other, and their respective evolutionary patterns are mutually
influencing. Along with the recent expansion of company disclosure,
a growing attention is being paid to corporate governance determi-
nants and mechanisms underpinning the decision to voluntarily adopt
non-financial disclosure formats, such as integrated reporting.
At institutional level, several national corporate governance codes
have been changed towards the recognition and inclusion of this inno-
vative, non-financial language. In academic research, the influence of
corporate governance variables vis-à-vis the choice to embrace such
reporting practices has been subject to a long scrutiny. However, only
a little inquiry has so far analysed the influence of corporate govern-
ance factors on integrated reporting adoption, quality, and credibility.
Accordingly, the aim of the book is to investigate if, and to what
extent, corporate board composition and characteristics can affect, at
the same time, the decision to voluntarily adopt integrated reporting
by companies as well as their financial performance. The study carries
out an empirical analysis of the professional features of board mem-
bers at the time of their decision to implement integrated reporting as
a new form of company accountability. The work provides innovative
insights into the articulated relationships between the quantitative and
qualitative composition of corporate boards and the latter’s choice to
uptake this advanced form of reporting to represent the wider value
creation processes of their organisations.

Laura Girella (PhD, Ferrara) is a Researcher in Business Econom-

ics and Accounting at the University of Modena and Reggio Emilia
(Italy), and a Technical and Research Manager at the International
Integrated Reporting Council (IIRC). She is also a member of the
Stakeholder Reporting Committee of the European Accounting As-
sociation (EAA).
Routledge Focus on Accounting and Auditing

Advances in the fields of accounting and auditing as areas of research

and education, alongside shifts in the global economy, present a con-
stantly shifting environment. This presents challenges for scholars and
practitioners trying to keep up with the latest important insights in
both theory and professional practice. Routledge Focus on Account-
ing and Auditing presents concise texts on key topics in the world of
accounting research.
Individually, each title in the series provides coverage of a key topic
in accounting and auditing, whilst collectively, the series forms a com-
prehensive collection across the discipline of accounting.

Gender and Corporate Governance

Francisco Bravo Urquiza and Nuria Reguera-Alvarado

Accounting, Representation and Responsibility

Deleuze and Guattarí Perspectives
Niels Joseph Lennon

Public Sector Audit

David C. Hay and Carolyn J. Cordery

Integrated Reporting and Corporate Governance

Boards, Long-Term Value Creation, and the New Accountability
Laura Girella

For more information about this series, please visit: www.routledge.

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RFAA
Integrated Reporting and
Corporate Governance
Boards, Long-Term Value Creation,
and the New Accountability

Laura Girella
First published 2021
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
and by Routledge
52 Vanderbilt Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2021 Laura Girella
The right of Laura Girella to be identified as author of this work has
been asserted by her in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
reproduced or utilised in any form or by any electronic, mechanical,
or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage or
retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks
or registered trademarks, and are used only for identification and
explanation without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Girella, Laura, author.
Title: Integrated reporting and corporate governance :
boards, long-term value creation, and the new
accountability / Laura Girella.
Description: Abingdon, Oxon ; New York, NY : Routledge,
2021. | Includes bibliographical references and index.
Identifiers: LCCN 2020045803 (print) | LCCN
2020045804 (ebook)
Subjects: LCSH: Corporate governance. | Boards of
directors. | Corporation reports. | Disclosure in accounting.
Classification: LCC HD2741 .G55 2021 (print) | LCC HD2741
(ebook) | DDC 658.15/12—dc23
LC record available at https://lccn.loc.gov/2020045803
LC ebook record available at https://lccn.loc.gov/2020045804

ISBN: 978-0-367-69371-8 (hbk)

ISBN: 978-1-003-14155-6 (ebk)
Typeset in Times New Roman
by codeMantra
to my children Alessandro, Alice and Giorgia Aurora and to
my family
Contents

List of illustrations ix
Foreword xi
Acknowledgments xiii

1 Introduction 1
The sense of the book 1
Disclosure, voluntary disclosure, and
corporate governance: some introductory remarks 5
The emergence of integrated reporting and
integrated thinking 9
Integrated reporting and corporate governance 13
Organisation of the book 15

2 Corporate governance and integrated reporting: an

international perspective 21
South Africa: the King Code experience 21
Japan 25
India 27
Malaysia 28
The UK 29
Australia 30
Italy 31
Conclusion 32
viii Contents
3 Corporate governance and voluntary disclosure:
a review of the literature 35
Corporate governance and voluntary disclosure 35
Corporate governance and sustainability reporting 42
Corporate governance and intellectual
capital reporting 46
Corporate governance and integrated reporting 51
Conclusion 54

4 From theory to practice: board characteristics,

financial performance, and the adoption of
integrated reporting 62
Research design 62
Hypothesis development 62
Sample selection 67
Statistical analysis 69
Conclusion 79

5 Boards, reporting, and long-term value creation:

towards an integrated view 83
Conclusions 83
Policy implications, study limitations, and
future research paths 89

Appendices
Appendix 1 List of organisations in the main sample
and in the control sample 93
Appendix 2 Analysis of residuals 95

Index 99
Illustrations

Figures
1.1 The linkages investigated in the book 2
5.1 Empirical results 87
A.1 Residuals versus predicted values 96
A.2 Histograms of residuals 97
A.3 Normal QQ-plot of residuals 98

Tables
3.1 Summary of main studies that have
investigated the relationship between corporate
governance and voluntary disclosure (focus on
outside/inside directors) 41
3.2 Summary of main studies that have
investigated the relationship between corporate
governance and CSR disclosure (focus on
outside/inside directors) 46
3.3 Summary of main studies that have
investigated the relationship between corporate
governance and intellectual capital disclosure
(focus on outside/inside directors) 50
3.4 Summary of main studies that have
investigated the relationship between corporate
governance and integrated reporting (focus on
outside/inside directors) 54
4.1 Sample distribution by country and industry 68
4.2 Descriptive statistics 70
4.3 Pearson correlation matrix 71
x Illustrations
4.4 Results of the multivariate analysis examining
the relationship between board characteristics
and economic and financial performance (full
model, p-values in brackets) 72
4.5 Results of the multivariate analysis examining
the relationship between board characteristics
and economic and financial performance
(reduced model, p-values in brackets) 73
4.6 Matrix of correlations between explanatory
variables and variance inflation factors (VIFs) 74
4.7 Descriptive statistics of the proportion
differences between the treated group
(companies that adopt integrated reporting)
and the control group (companies that do not
adopt integrated reporting) 77
4.8 P-values of the partial tests 77
4.9 P-values of the partial tests after stratification
by financial year 79
Foreword

Milton Friedman’s doctrine (1970), which states that the only social re-
sponsibility of companies is to produce profits, has been overcome in
recent decades by increased attention to corporate governance issues
by shareholders, investment banks, and financial institutions, as well
as regulators and the general public as customers.
Boardrooms and governance professionals have been called upon
to give greater consideration to wider societal and environmental
concerns, as well as intangible considerations, resulting in renewed
time horizons for company evaluations and improved board attitudes,
decision-making, and performance.
This profound change in the role and objectives of corporate gov-
ernance has transformed the concept of “value creation”, which now
refers not only to the short but also to the medium and long terms and
covers the whole range of resources and relationships an organisation
uses and effects.
Integrated reporting is the most advanced and comprehensive in-
strument that boards and governance professionals can incorporate
into their strategy and business models to drive this expanded concept
of value creation, and test businesses resilience against factors such
as environmental, financial, and social capitals. To this end, the In-
ternational Integrated Reporting Council (IIRC) has developed the
concept of integrated thinking, which not only constitutes the basis for
integrated reporting but also informs company management carried
out by boardroom members and executives.
Laura Girella’s book addresses why, when, and how boards decide
to adopt integrated reporting, as they respond to new demands for
accountability, utilising the latest research, approaches, and methods.
It provides an important and timely insight into the composition and
characteristics of boards, with the increasingly varied backgrounds of
xii Foreword
directors driving new viewpoints and providing the innovative mind-
set needed for the adoption of integrated reporting.
With the exception of South Africa, integrated reporting is still a
voluntary framework and yet increasing numbers of businesses are
choosing to adopt it in countries around the world. It provides a tool
to navigate the changing landscape in this post-Friedman era and is all
the more relevant in an era of Covid-19.

Charles Tilley, OBE

Chief Executive Officer
International Integrated Reporting Council (IIRC)
Acknowledgments

I would like to thank Prof. Stefano Zambon for his continuing mentor-
ing, advice, and motivation action.
I am also indebted to Mr. Mario Abela, World Business Council for
Sustainable Development (WBCSD) for backing this project, and to
Prof. Stefano Bonnini (University of Ferrara) for his invaluable statis-
tical support.
Dr. Giuseppe Sudano has contributed to the preparatory work for
this book.
I am very grateful to Mrs. Kristina Abbotts for her remarkable un-
derstanding and precious editorial assistance.
And finally, I am thankful to my partner and my kids for their last-
ing patience and emotional encouragement.
1 Introduction

The company is an artificial person which has no heart, mind or soul

of its own.
Directors, once appointed, become the heart, mind and soul of the
company.
(Judge Professor Mervyn E. King, 2017)

The sense of the book

The aim of this book is to investigate if and to what extent corporate
board composition and characteristics can affect, at the same time,
the decision to voluntarily adopt integrated reporting by companies as
well as their financial performance. These relationships are examined
at the time of adoption and with reference to organisations located in
countries other than South Africa, where this accountability tool is
mandatory for listed companies.
Drawing on this analysis, the study intends to provide innovative
insights into the articulated relationship between the quantitative and
qualitative composition of corporate boards on the one side, and firm
financial performance and the board’s choice to uptake this advanced
form of reporting on the other one.
Furthermore, the book also explores the association between the
financial performance of the company and the decision of implement-
ing integrated reporting. Some studies have in fact found the choice of
integrated reporting as being guided by an “impression management”
approach, i.e. as a means through which managers can favourably in-
fluence investors and stakeholders. Figure 1.1 summarises the linkages
that will be explored in this study.
In this respect, this research can be located into the broader stream
of academic and professional literature investigating the complex
nexus of relationships between corporate governance determinants,
2 Introduction

Board Composition and

Characteristics

Corporate Financial Integrated Reporting

Performance Adoption

Figure 1.1 The linkages investigated in the book.

mechanisms, and consequences (De Villiers and Dimes, 2020), and,

more specifically, it is sympathetic with the studies that have advanced
that the human side of corporate governance and its linkage to value
creation should be better understood (Huse, 2007).
In general terms, it can be said that corporate governance and cor-
porate reporting are closely linked to each other, and their respec-
tive evolutionary paths appear to have been mutually influencing
(Fiori and Tiscini, 2005; Kolk, 2008; Kolk and Pinkse, 2010; Chan
et al., 2014).
From a theoretical viewpoint, since the emergence within companies
of the separation between ownership and control (Berle and Means,
1932), conducive later to the Agency theory (Jensen and Meckling,
1976) and the doctrine of shareholder primacy and value (Rappaport,
1986), corporate governance has been mainly conceived as a way to
guarantee investor protection. This view echoes the Milton Fried-
man’s well-known philosophy on the basis of which the only social
responsibility of corporations is to increase their profits for sharehold-
ers (Friedman, 1970).
In this respect, Shleifer and Vishny (1997, p. 737) state that “cor-
porate governance deals with the ways in which suppliers of finance
to corporations assure themselves of getting a return on their invest-
ment”, while La Porta et  al. (2000, p. 4) refer to corporate govern-
ance as a “set of mechanisms through which outside investors protect
 Introduction  3
themselves against expropriation by the insiders”, where ‘the insiders’
are embodied by managers and controlling shareholders. Hence, it can
be maintained that Agency theory calls for a more significant propor-
tion of outside and independent directors in the board, in that they
can align more easily shareholder and manager interests, thus more
effectively exerting the perceived board’s primary function of ‘control’.
Interestingly enough, this modern view contrasts with the traditional
vision going back to the 1930s, according to which the role of execu-
tives was instead to “instill the sense of moral purpose in company’s
employees” (Barnard, 1938, p. 89).
Only recently the various general calls for broadening the govern-
ance scope towards a more profound consideration of interests and
needs of different categories of interests (Stakeholder theory) have
started being heard (Freeman and Reed, 1983; Luoma and Goodstein,
1999). This approach has been essentially articulated in terms of cor-
porate governance and board’s behaviour through the Stewardship
theory and the Resource-Dependence theory.
According to the Stewardship theory, managers are not only to
be conceived as those to be controlled because they assume a self-
interested and ‘opportunistic behaviour’. They can have a ‘good
steward behaviour’ (Donaldson and Davis, 1991, as they are moved
by incentives that are not (only) of financial nature related to both
their own satisfaction (i.e. recognition, personal achievement) and
the organisational one (i.e. good performance or company success).
It follows that the board’s primary function is still that of control, but
the latter is fundamentally shifted to managers, who thus become an
integral component of the company’s governing body. In other words,
Stewardship theory favourably views the presence of insiders in the
boardroom as, having a profound knowledge of the organisation, they
can maximise shareholders’ profit as well as outsiders’ interests.
In addition to Agency and Stewardship conceptual approaches,
Resource-Dependence theory has also been put forward to study cor-
porate governance (Pfeffer and Salancik, 1978). The central focus of
this theory expands beyond the needs and interests of providers of fi-
nancial capital to consider the overall external environment in which
the company operates. In particular, organisations aim to exert con-
trol on the surrounding context to assimilate the set of resources they
need to survive. Accordingly, the function of the board of directors is
not only that of acting as a monitoring body but also that of providing
resources to the organisation through its external networks (Hillman
and Dalziel, 2003).
4 Introduction
On a broader perspective, there seems to be a wide consensus that
over the years corporate governance and, consequently, board roles
and functions have become more complex and difficult regarding not
only the protection of the rights and interests of shareholders and in-
vestors, but more generally the response to the expectations of stake-
holders, communities, and networks rotating around companies and
their operations, and the information thereon (Huse and Rindova,
2001; Ayuso et  al., 2014). This evolution has translated into various
attempts to integrate the above delineated different theoretical views
(Donaldson and Davis, 1991; Muth and Donaldson, 1998; Kiel and
Nicholson, 2003; Nicholson and Kiel, 2007). In this respect, it might
be interesting to consider whether also the relationship between board
composition and its features, company financial performance, and in-
tegrated reporting can be better understood in light of a more unitary
conceptual approach drawing on all of these diverse theories.
In parallel with the evolution of the roles of corporate governance,
in the last 20 years corporate disclosure also has been relentless
expanding its boundaries towards the enclosure of a more compre-
hensive set of information well beyond that required by financial
reporting (Lev and Zarowin, 1999). At first, there has been the pub-
lication of information on the environmental and social impacts of
organisational activities and then, more generally, on corporate value
creation processes, also encompassing intangibles. This expansion
process in company disclosure has been supported not only by a new
political and societal climate and a relatively more open reporting at-
titude of companies, but also by innovative research findings, accord-
ing to which disclosure of discretionary information should not be
seen as necessarily negatively impacting firm performance and value
(Verrecchia, 1983; Botosan, 1997).
In light of the above theoretical and practical developments, it is not
surprising that the expansion of both the functions and roles of corpo-
rate governance on the one hand, and of voluntary disclosure, and in
particular of reporting models other than the traditional financial one,
on the other hand, has brought about a rising level of attention paid
to the linkages between these two areas. In this picture, growing con-
sideration is being given today to a better understanding of the corpo-
rate governance determinants that underlie the decision by corporate
boards and managers to adopt and publish non-financial reporting
formats. More and more, information about how this is organised in-
fluences perceptions and actions of companies. In this respect, the way
in which organisations report externally on their activities and perfor-
mance can be interpreted as the result of the mindsets and behaviours
 Introduction  5
of those people who govern them, namely, the board members and the
management team. Evidently, by implementing and communicating
on their reports company’s strategies, structures, and internal proce-
dures, those people can also convey messages and diffuse an organi-
sational culture that points to specific directions as opposed to others.
Indeed, information and the way it is structured influence perceptions
and actions in and around companies.
On the other hand, the relationship between corporate governance
and reporting is not limited to an organisation’s boundaries. External
governance mechanisms, represented by institutional forces and na-
tional cultures, do play a role (La Porta et al., 2000; Duong et al., 2016).
In this respect, it can be observed that national corporate governance
Codes have also moved towards the recognition and inclusion of these
new non-financial reporting languages and forms (see Chapter 2).
As to academic research, the influence of corporate governance
mechanisms vis-à-vis the choice to embrace a given reporting prac-
tice has been subject to long scrutiny and debate. Many studies, based
on differentiated theoretical approaches, have investigated the cor-
porate governance features as explanatory factors of different types
of disclosure, such as those relating to financial reporting, Corporate
Social Responsibility (CSR), and Intellectual Capital (IC). However,
only a few papers thus far have analysed the influence of corporate
governance variables on the adoption of integrated reporting and the
quality and credibility of this form of accountability. Even fewer stud-
ies have investigated this link in terms of board members’ experience
and background, even though different voices have recently advocated
that also the diversification of the board is key for a balance between
shareholder/stakeholder-ism, and namely long-term value creation
(Barton, 2011; FCLT Global, 2019; Coffee, 2020) (for more depth, see
Chapter 3). This perceived gap in the literature inspired the making of
this book.
Within this frame, this introductory chapter intends to delineate
some of the general issues associated with the relationship between
voluntary disclosure and corporate governance, focussing on inte-
grated reporting in the second part of this section.

Disclosure, voluntary disclosure, and corporate

governance: some introductory remarks
Since the 1990s, an increasing interest in the issue of corporate dis-
closure has been manifested by legal systems, regulatory bodies, and
investors. Following the financial scandals that occurred in the past
6 Introduction
decades, the increased awareness of the relevance of corporate in-
formation for an efficient functioning of financial markets, as well as
the progressive articulation of the concept of value creation, has con-
tributed to making the issue of corporate disclosure central (Benston
et  al., 2004; Tiscini and Di Donato, 2006; Calder, 2008), also in its
voluntary dimension.
Several factors have contributed to this evolution. The core of cor-
porate disclosure is of course based on the financial information re-
quired by national and international regulations and standards (i.e.
International Financial Reporting Standards (IFRS)), which results in
the periodic mandatory preparation of various corporate documents
(e.g. annual and quarterly-/half-year reports). However, as previously
delineated, company disclosure is no longer based only on what is re-
quired, but it also increasingly comprises information completing and
better illustrating the phenomena already reported on following laws
and standards. This information is commonly disclosed in financial
statements and the notes, the management commentary, the corpo-
rate governance statement, the compensation report, (sometimes) the
sustainability and/or the integrated report, and other operational and
institutional documents.
At the same time, the supranational dimension of the capital mar-
kets has placed in the foreground also the need to reach a greater
degree of homogeneity of corporate information regarding both the
structure and the contents of corporate documents to enhance the
understandability and comparability of financial data essential to
investment decision-making by current and potential investors in the
international arena.
Furthermore, it should be observed that the published annual re-
ports are used today as a means for communicating both quantita-
tive and qualitative corporate information not only to shareholders
and investors but also to all the other stakeholders. This situation has
led to a significant evolution in the contents of traditional mandatory
communication documents, especially in the case of listed companies.
As a further evolving factor of corporate disclosure, there is also
broad recognition of the importance of considering – along with all
stakeholder groups, particularly if they are heterogeneous –the va-
riety of institutional contexts and arrangements whose social values
are subject to change (Zajac and Westphal, 1994; Westphal and Zajac,
2001). This also applies to the need to communicate adequately –
covering not only legal compliance but also the institutional, social,
and organisational “fitting” – what is perceived to be good corporate
governance, which is, in turn, conditioned by the alternative interpre-
tations of the various corporate actors (Hambrick et al., 2008).
 Introduction  7
Moreover, the orientation and scope of disclosure are influenced by
the national cultural environment in which companies operate (Gray,
1988).
Another relevant factor is that information dissemination and pro-
cessing have received increasing attention from companies around the
world. This process is a consequence of the spreading of the new dig-
italised, knowledge-based economy, and the innovative digital tools
and languages such as the XBRL (eXtensible Business Reporting
Language).
Furthermore, a high-level disclosure could provide a more intense
monitoring package to reduce opportunistic behaviour and informa-
tion asymmetry (Li et al., 2008). Having said that, it is widely recog-
nised, though, that financial reports do not reflect an extensive range
of value creation activities relating to intangible assets (Lev and
Zarowin, 1999). This deficiency gives rise to an increase in informa-
tion asymmetries between businesses and users, and it allows for the
creation of potential inefficiencies in the external resource allocation
process. Indeed, numerous research reports (FASB, 2001; ASB, 2007)
and academic studies (Lev, 2000; Mouritsen et al., 2001) have called
for greater disclosure on intangibles and intellectual capital (Li et al.,
2008).
Also voluntary non-financial disclosure, which began essentially
with environmental reports in the 1980s and social accounts in the
1990s, has become widespread since then. Especially in the last dec-
ade, there has been an increasing adherence by companies to volun-
tary communication practices concerning corporate (governance
structures, control systems, organisational climate, and well-being)
and socio-environmental aspects (respect for human rights and the
environment, human resource rights, company development, product
safety, impact on society, communities, territories, and so on). The
spreading of these practices has become even more frequent as a con-
sequence of the growing changes taking place in the corporate operat-
ing environments and the pressure exerted by the different categories
of stakeholders (Freeman, 1984; Carroll, 1991; Elijido-Ten et al., 2010;
Fernandez-Feijoo et al., 2014). In this evolutionary context, in paral-
lel to the voluntary diffusion of disclosure practices of non-financial
information, this type of reporting has also been mandated for large
companies in the European Union as a consequence of the European
Directive no. 95/2014 (see below).
Looking more in depth at the corporate choice to proceed on with
voluntary disclosure, it is rather evident that disclosure is the product
of a management decision (Meek et al., 1995; Healy and Palepu, 2001).
In general terms, the information gap existing between managers and
8 Introduction
shareholders/stakeholders generates information asymmetry. This
phenomenon results from managers’ private access to information
about their efforts or beliefs, which are not observable by interested
parties outside the company. Therefore, company transparency is a
crucial factor for stakeholders, which will be able to determine an ef-
fective interaction between the latter and the company and its man-
agers. Consequently, information asymmetry between a company’s
managers and stakeholders creates opportunities for voluntary dis-
closure decisions and actions to increase corporate transparency, and
not only room for opportunistic behaviour by managers. Accordingly,
the voluntary disclosure decision becomes a strategic response from
the company to stakeholder expectations and information needs con-
trasting the information asymmetry phenomenon. On the other hand,
voluntary disclosure can be a critical device capable of moderating
the information asymmetry even between the different types of share-
holders (Leuz and Verrecchia, 2000; Allegrini and Greco, 2013).
There are two fundamental types of voluntary disclosure. The first
type occurs when a company decides on autonomous grounds to adopt,
prepare, and disseminate disclosures following a regulation or a stand-
ard already in force and mandatory for other organisations, but that is
not so for the company in question. Think of the national laws coming
out from the implementation of the aforementioned Directive 2014/95/
EU of the European Parliament and the European Council of 22 Oc-
tober 2014, amending Directive 2013/34/EU as regards the communi-
cation of non-financial information and the disclosure on the diversity
from certain enterprises and large groups. For example, the legislative
decree of 30 December 2016, no. 254, has implemented in Italy the pro-
visions of that European Directive, making it mandatory for compa-
nies to disclose such information when they have a total of more than
500 employees during the financial year, and a consolidated balance
sheet in which at least one of the following conditions is verified: total
assets larger than 20 million euros or total net revenues from sales and
services exceeding 40 million euros. There are several cases of Italian
companies that, despite not being bound to follow the mandatory pre-
scriptions of the decree no. 254/2016, they have decided spontaneously
to publish the “Non-Financial Statement” regulated by that law. This
type of voluntary disclosure can be labelled as “mimetic”.
The second type of voluntary disclosure developed over the last 20
years or so, taking the form of spontaneous dissemination of data and
information concerning corporate activity, which is additional to what
is required by legislation. This type of disclosure has progressively
emerged in relation to – and perhaps as a consequence of – the issuance
 Introduction  9
by a plurality of public and private bodies of principles, standards, and
reporting models on the social and environmental questions. Accord-
ingly, this type of disclosure is based on non-mandatory sustainability
standards that companies decide to follow spontaneously to reduce
information asymmetries, improve their image, better understand and
show how their value is actually generated, and many other reasons.
That is why this category of voluntary disclosure can be referred to as
“strategic non-imitative”.
Probably, the most complete and advanced form of this second type
of voluntary disclosure today is integrated reporting aimed to compre-
hend how a company creates value over time. The only country in the
world where an integrated report cannot be considered a voluntary
disclosure but has a mandatory nature is South Africa, where compa-
nies are required by the national corporate governance code (i.e. King
Code IV) to prepare such form of reporting when they are listed on the
Johannesburg Stock Exchange.
Research and surveys carried out on voluntary disclosure reveal the
persistence of extreme heterogeneity in the practices currently adopted
by companies, highlighting how the diffuse lack of detailed regulatory
provisions and shared reporting models has led to the coexistence of
different frameworks, tools, contents, and processes not only between
different countries but also nationally (Boesso and Kumar, 2009;
Leuz, 2010). More specifically, the empirical analyses developed on the
topic have shown how the implementation of voluntary reporting and
the forms and contents taken by it present a correlation with specific
company characteristics such as its size, sector, and profitability, as
well as the degree of market concentration.
In summary, it can be affirmed that over the last 10–20 years corpo-
rate disclosure has moved at an accelerated pace along two evolution-
ary paths: from financial towards non-financial information, and from
mandatory towards voluntary forms of reporting. Corporate governance
has played a fundamental role in both these shifts.

The emergence of integrated reporting and

integrated thinking
Integrated reporting aims to tell the value creation story of a com-
pany by disclosing, in a concise manner, information on its corporate
strategy, governance, risk management, performance, and prospects
(IIRC, 2013).
Integrated reporting was launched by the International Integrated
Reporting Committee (IIRC) in 2010. The first edition of the official
10 Introduction
International Framework was published in December 2013. Integrated
reporting functions as both a business management tool and a new ex-
ternal accountability vehicle, and it combines traditional financial re-
porting with sustainability performance and intangibles. It is a way to
logically codify the reporting of corporate financial and non-financial
information. The Framework of integrated reporting can be adopted
not only by large companies as well as small- and medium-sized enter-
prises, but also by public sector entities and non-profit organisations.
Integrated reporting provides a broader explanation of corporate per-
formance than that shown by the traditional annual financial report
(IIRC, 2013).
The IIRC is a global coalition made up of regulators, investors,
companies, non-government organisations, and professionals operat-
ing in the accounting sector. The IIRC believes that communication
on value creation is and should be the next step in the evolution of
corporate reporting (IIRC, 2013). The long-term vision of the IIRC
is a world in which integrated thinking is part of the main corporate
practices of the public and private sectors, and which is facilitated
by having integrated reporting as a corporate and corporate report-
ing norm. The cycle of integrated thinking and integrated reporting
should act as a driver of financial stability and long-term sustaina-
bility by providing efficient and productive capital allocation. In the
IIRC view, integrated reporting then aims to promote a more cohesive
and efficient approach to corporate reporting and improve the quality
of information communicated to financial capital suppliers, allowing
them a more efficient and productive capital allocation. The IIRC per-
spective substantiates in a world in which the leading players in the
business realm, public and private, think in an integrated way and
are facilitated in this by using integrated reporting as their primary
reporting tool.
Integrated reporting aims to improve the quality of the informa-
tion provided to financial capital suppliers to allow them to pursue
a more efficient and productive capital allocation. It also promotes
a more cohesive and efficient approach to corporate reporting, by
making it draw on different information elements while disclosing a
wide range of factors that significantly affect an organisation’s abil-
ity to produce value over time. Integrated reporting also pursues the
goal to strengthen the accountability and responsibility of managing
different forms of capital and guide the understanding of the inter-
dependence between them, as well as supporting integrated thinking,
decision-making, and corporate actions aimed at creating value in the
short, medium, and long terms.
 Introduction  11
Although the integrated reporting process is consistent with the
progress of financial and non-financial reporting, an integrated report
differs from other forms of disclosure and communication in several
respects. It focusses on an organisation’s capacity to generate value
in the short, medium, and long terms, and it enhances conciseness,
strategic focus, orientation towards the future, and the connectivity
of information and capitals, showing the mutual interdependencies.
An integrated report is closely linked to the concept of integrated
thinking, which is the result of considering the relationships between
the operational units and the functions of an organisation. It takes
into account the connections and interdependencies between the nu-
merous factors that influence an organisation’s ability to create value,
including the capitals that an organisation uses, the capability of an
entity to respond to stakeholder needs, the ways in which an organ-
isation adapts its business model and its strategy to respond to the
external environment, and the elements that promote an entity’s ac-
tivities, performance, and results. The more an organisation can in-
corporate integrated thinking into its activities, the more natural it is
to apply the concept of information connectivity in management re-
porting, analysis, and decision-making. This approach of integrated
thinking also allows the information systems that support reporting
activities and internal and external communication to be integrated
more effectively. Hence, it can be said that it leads to an integrated
decision-making process and actions aimed at creating value. In this
respect, integrated thinking can be seen as a component of corpo-
rate governance in that it is a concept encouraging – primarily the
board – to adopt an integrated approach to strategy and manage-
ment, and thus the achievement of an ethical culture, a good per-
formance, and effective control and legitimacy by an organisation
(IODSA, 2016; Accountancy Europe, 2019). To put it differently, a
sustainable success.
As stated in the International Framework (para. 1.8, p. 7, 2013), an
integrated report is also meant to offer benefits to all stakeholders who
are interested in an organisation’s ability to create value over time,
including employees, customers, suppliers, business partners, local
communities, legislators, regulatory bodies, and policy-makers.
The Framework of integrated reporting adopts a principles-based
approach. The aim is to achieve a balance between flexibility and the
characterising features of integrated reporting, so to consider the
many possible variations introduced by the specific circumstances
regarding individual organisations and, at the same time, to reach
a certain level of comparability between the disclosure of different
12 Introduction
organisations, which could be sufficient to meet the various needs for
relevant information.
Integrated reporting must include, on a transitional basis and ap-
plying the “comply or explain” approach, also a declaration in which
the members of the organisation’s governance recognise their respon-
sibility for the report.
An integrated report aims to provide detailed information on the
resources used, called capitals, and the relationships on the basis of
which an organisation generates value.
An integrated report is also intended to illustrate the ways in which
an organisation interacts with the external environment and which are
the capitals used to create value in the short, medium, and long terms.
Capitals are value stocks that are increased, reduced, or transformed
by an organisation’s activities and outputs. Capitals are divided into
six different types: financial, productive, intellectual, human, social
and relational, and natural.
The ability of an organisation to create value for itself allows fi-
nancial capital providers to realise an economic return. This ability is
associated with the value created by the organisation for stakeholders
and society in a broad sense through a wide range of activities, inter-
actions, and relationships. When the latter significantly influence the
ability to create value for the organisation itself, they are included in
the integrated report.
An integrated report generally includes some ordinary contents that
are closely related and can be presented simultaneously. They include
the presentation of the organisation and the external environment; what
the organisation does and in what circumstances it operates; how the
organisation’s governance structure supports its ability to create value
over time; which is the organisation’s business model; the specific op-
portunities and risks that affect the organisation’s ability to create value
and how they are managed; an evaluation of what the organisation’s
goals are and how it intends to achieve them; to what extent has the
organisation achieved its strategic objectives and what are the achieve-
ments in terms of effects on capital; the challenges and uncertainties
faced by the organisation in the implementation of its strategy; and the
potential implications for its business model and future performance.
An organisation will determine the specific aspects to be included
in its integrated report and how these aspects are quantified and eval-
uated. However, all this information must be contained in the inte-
grated report to make it adequate and complete (IIRC, 2013). To claim
that a reporting document is an integrated report, an explicit reference
to the International IIRC Framework should be made.
 Introduction  13
The preparation of an integrated report must be based on some
Guiding Principles, which include the following:

• Strategic focus and future orientation

• Connectivity of information
• Stakeholder relationship
• Materiality
• Conciseness
• Reliability
• Comparability

In addition to these principles, an integrated report is supposed to

show the following Content Elements (IIRC, 2013):

• Organisational overview and external environment

• Governance
• Business model
• Risks and opportunities
• Strategy and resource allocation
• Performance
• Outlook

In summary, integrated report is a communication document that

illustrates how an organisation’s strategy, governance, performance,
and perspectives allow it to create value in the short, medium, and
long terms in the context in which it operates (IIRC, 2013).

Integrated reporting and corporate governance

After having introduced the relationship between corporate govern-
ance and new forms of voluntary accountability, and having high-
lighted integrated reporting as a new reporting practice able to respond
to some of the information gaps of traditional financial reporting, one
could wonder why organisations, and primarily the board, should de-
vote resources and time to create such reporting form, i.e. the underly-
ing reasons that can drive organisations to implement it.
Firms generally face higher demands for transparency and disclose
information on key strategic decisions, which leads to request by ex-
ternal parties for other types of information besides financial account-
ing measures (Luo, 2005).
However, voluntary disclosure is not for free. As synthesised by Al-
legrini and Greco (2013), companies wishing to reduce information
14 Introduction
asymmetries through disclosure may be affected by proprietary costs,
litigation costs, and costs related to potential damage to existing fi-
nancing relationships.
Since disclosure comes at a cost, companies could opt to strengthen
internal control mechanisms instead of increasing the level of disclo-
sure (Cheng and Courtenay, 2006; Cerbioni and Parbonetti, 2007).
Similarly, businesses may prefer to reduce the costs associated with
information asymmetries by improving corporate governance rather
than increasing their level of disclosure.
In turn, the provision of voluntary disclosure generates specific
costs for the organisation as well as benefits from the reduction in the
amount of information asymmetry. The organisation’s costs for this
information include not only those linked to the processing and com-
munication of information, but also the proprietary costs that could
occur as a result of this information being used against the company
by competitors, regulators, and other external pressure groups.
Despite the risks and costs that companies must bear to create an
essentially voluntary disclosure such as an integrated report, this ac-
countability practice is carried out voluntarily by many companies
around the world (around 1,000 – cf. IIRC website), with the exception,
as already stated, of the companies listed on the Johannesburg Stock
Exchange, where it is mandatory in line with the King Code IV.
According to the traditional view of Milton Friedman (1970), based
on liberalistic principles, businesses should only pursue profit while
respecting laws and regulations, and this is the sole social responsi-
bility they have. But at the same time, it is a reality that companies
prepare these voluntary reports and information, incurring the related
costs, which may seem to be a paradox.
As will be shown in Chapter 3, when analysing the academic liter-
ature, it emerges that the decision of adopting integrated reporting
is dependent mainly on the corporate governance of a company. For
example, Cheng et al. (2014) and Haji and Ghazali (2013) test the re-
lationship between corporate governance and integrated reporting.
They find that corporate governance plays a central role in the choice
of preparing an integrated report within a company. On the other
hand, Keenan and Aggestam (2001) argue that responsibility for the
prudent investment in intellectual capital (which is one of the capitals
considered in integrated reporting) lies with corporate governance,
which must then structure – depending on the company – adequate
processes for the communication of information on the value created
for stakeholders through the intellectual capital of a company.
 Introduction  15
In this respect, the current corporate governance code of the com-
panies listed on the Johannesburg Stock Exchange – the so-called
King IV – states that corporate governance, and then company boards
of directors, as well as integrated reporting are both essential to each
other and have a very strong link. As recently stated by Professor
Judge Mervyn E. King,

the vision must be to have a company-centric governance model

which moves away from yesterday’s primacy of the shareholder. It
needs to be implemented mindfully to achieve the four outcomes
of effective leadership, value creation in a sustainable manner, ad-
equate controls and legitimacy of operations. The International
<IR> Framework is the light towards this goal.
(2017)

Therefore, to understand why organisations spend time and invest

continuously considerable resources in implementing integrated re-
porting, it is necessary to analyse which are the factors within the
corporate governance that may affect the embracing of this accounta-
bility tool. In other terms, what are the corporate governance variables,
characteristics, and dynamics that are conducive to the decision to adopt
an integrated report, despite the costs associated with it? Which is or are
the theoretical frameworks that can better explain this relationship?

Organisation of the book

The book is structured as follows. Chapter 2 provides an overview of
how corporate governance Codes have been adapted worldwide in
order to align and/or incorporate the principles of sustainability and
integrated reporting. To do so, the analysis is based on those countries
where corporate governance Codes have undergone a change towards
the acknowledgement of integrated reporting. The main similarities
and differences between those Codes are also outlined.
Chapter 3 is devoted to an examination of the major developments
in academic and professional literature on the link between corporate
governance and voluntary disclosure. More specifically, it analyses
four main lines of enquiry, namely, corporate governance and volun-
tary disclosure, corporate governance and sustainability reporting,
corporate governance and intellectual capital disclosure, and corpo-
rate governance and integrated reporting. The main similarities and
differences between the four areas are outlined. Furthermore, on the
16 Introduction
basis of the literature review carried out, the hypotheses to be tested
in the following session are developed.
In Chapter 4, the association between corporate governance and
integrated reporting is illustrated through an empirical investigation.
The analysis carried out rests on a statistical investigation aimed to
understand to what extent the professional background of the mem-
bers of the boards of directors can influence the voluntary adoption of
this advanced reporting practice.
Finally, Chapter 5 summarises and critically examines the results
obtained in previous chapters. It also discusses the conclusions that
can be drawn in terms of theoretical and policy contributions and
prospects for scholars and professionals researching and operating in
these arenas.

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2 Corporate governance and
integrated reporting
An international perspective

As previously mentioned, corporate governance and disclosure are

two elements that go hand-in-hand. This linkage can find its premises
both at a firm level and at an institutional level. Companies may decide
to change their governance structure and disclosure practices not only
to better align to their raison d’ être (profit vs. shared value), but also to
respond to the normative or legitimacy forces deriving from the envi-
ronment in which they operate.
Accordingly, this chapter will provide an overview of how corporate
governance Codes have been adapted worldwide to align and/or in-
corporate the principles of this new form of long-term accountability
tool, namely, integrated reporting. To do so, the analysis will be based
on a chronological examination of those countries where corporate
governance Codes have undergone a change towards the acknowl-
edgement of integrated reporting. The common denominators that
characterise this process will be outlined at the end of this chapter.

South Africa: the King Code experience

South Africa is probably the most well-known example of a country
that has witnessed a radical change in corporate behaviour, thanks to
the inclusion of recommendations of reporting practices into govern-
ance principles. This evolution started in 1993, few years after the end
of the Apartheid, when the Institute of Directors in Southern Africa
(IoDSA) asked Prof. Judge Mervyn E. King to chair a Committee on
corporate governance in order to restore good governance practices in
the country. During the Apartheid era, South Africa became, in fact,
isolated from the global economy and companies, not being subject
to foreign competition, had no greater incentive to adopt sound cor-
porate governance practices able to protect their investors and stake-
holders in general. Only when the African National Congress won the
22  Corporate governance, integrated reporting
election in 1994, and Nelson Mandela was appointed President, firms
felt under pressure. In addition to Prof. King, the Committee was
composed of Philip Armstrong, Nigel Payne, and Richard Wilkinson,
three well-known experts in the field of corporate governance in South
Africa.
After one year of work, in 1994, the Committee issued the first
version of the Report, which then became known as ‘King Report’
(IODSA, 1994). It represented the first corporate governance code for
the South African context. It addressed companies listed on the Jo-
hannesburg Stock Exchange, and other large organisations, such as
public entities as defined by the Public Entities Act of South Africa,
banks, financial, and insurance companies as defined by the Finan-
cial Services Acts of South Africa, and large unlisted companies. The
originality of this document relied not only on being the first in the
region but most importantly on its structure and contents. Differently
from Codes in other countries, it did not have regulatory power and,
as such, it was based on principles (at least until 2016). Furthermore,
it adopted a ‘comply or explain’ approach, which was almost unique
internationally. In terms of contents, the main principles covered as-
pects such as the definition of the composition and the mandate of
the board of directors and, specifically, the characteristics that non-
executive directors should possess as well as the rules that should guide
their appointments to the board and some guidance on the maximum
term for executive directors. It also included principles about the de-
termination and disclosure of executive and non-executive directors’
remuneration, the frequency of board meetings, the requirement for
effective auditing, the presence of an affirmative action programme
included in the business plan, and the implementation of the Code of
ethics. Its main innovative spirit was related to the indication that the
board is responsible for the issuance of a balanced annual report and,
in general, of transparent communications able to take into consid-
eration the demands by the society for “greater transparency and ac-
countability from corporations regarding their non-financial affairs”.
Hence, the request was for a report to “address material matters of
significant interest and concern to all stakeholders” (Chapter 20). It
can then be stated that the first version of the King Report adopted
a stakeholder approach to corporate governance. It was important to
regulate the relationship between directors, shareholders, and stake-
holders in a moment where the control of companies was shifting from
families to institutions (IODSA, King I, 1994, p. 1).
Quite soon, in 2002, King Report I underwent a revision (IODSA,
2002). Its target audience was enlarged to financial institutions,
 Corporate governance, integrated reporting  23
public sector companies, and agencies included in the Public Finance
Management Act of South Africa and the Johannesburg Stock
Exchange required listed companies to comply with the Code or to
provide reasons for non-compliance. Its contents broadened towards
the inclusion of an ad hoc section on sustainability, the role of the
board, and risk management. More specifically, it introduced the con-
cept of ‘integrated sustainability reporting’ which encompasses the
inclusion of a wider set of non-financial information. In other words,
companies were encouraged to prepare a sustainability report in addi-
tion to annual financial accounts, and the board was deemed respon-
sible towards all stakeholders. King II states:

Successful governance in the world of the 21st century requires

companies to adopt an inclusive and not an exclusive approach.
The company must be open to institutional activism and there
must be greater emphasis on the sustainable or non-financial
aspects of its performance. Boards must apply the test of fair-
ness, accountability, responsibility and transparency in all acts
or omissions and be accountable to the company but responsive
and responsible towards the company’s identified stakeholders.
The correct balance between conformance with governance
principles and performance within an entrepreneurial mar-
ket economy must be found, but this will be specific to each
company.
(IODSA, King II, 2002, p. 20)

In light of the changes that were occurring at a national and interna-

tional level, especially as a result of the IT advances, in 2009 a new
version of the Code, the King Code III, was released (IODSA, 2009).
The most significant change related to the fact that companies were
not asked to produce a sustainability report in addition to a financial
report anymore, but to integrate information on governance, strategy,
and sustainability. It first introduced the concept of ‘integrated annual
reporting’ defined as “a holistic and integrated representation of the
company’s performance in terms of both its finances and sustainabil-
ity”. As pointed out by Mervyn King (2009, p. 14)

the board should take into consideration four capitals, namely fi-
nancial capital which is provided by shareholders, human capital
by employees, natural capital by natural resources, such as air,
water and land and social capital by the actors surrounding com-
panies activities.
24  Corporate governance, integrated reporting
In terms of adoption, the Code became applicable to all entities (SMEs
included), with an ‘apply or explain’ approach. This was to avoid situ-
ations of non-compliance by private companies that became recurrent
in the country. In fact, they did not look at King II as being applicable
to them, but this did not correspond with the primary objective of the
King Codes to ensure good governance principles to be adopted by all
South African companies.
In 2016, the final version of the King Code, the King Code IV,
was published (IODSA, 2016). Despite the fact that it retained most
of the contents of the King Code III, even though on a reduced ba-
sis (from 75 to 17 principles, with the 17 ones being applicable only
to institutional investors) and that it included recommended prac-
tices instead of principles, some significant differences are present
between the two versions. First, King IV moved from the initial ap-
proach of ‘apply or explain’ to that of ‘apply and explain’, this mean-
ing that the board should report on the recommended practices that
have been adopted, on how they have been implemented, and on
which ones will be uptaken in the coming financial year. Second, it
introduced additional sector supplements to support municipalities,
non-profit organisations, retirement funds, small- and medium-sized
enterprises, and state-owned entities to interpret better and apply
the recommendations. Furthermore, while information technology
was recognised as one source of value creation in the King Code
III, the King Code IV separates information from technology. It
also, most importantly, stresses the concept of ‘outcomes-based’
corporate governance to ensure internal and external stakeholders
could come to the conclusion that the company, in the person of
the high governing body, has been practising good corporate gov-
ernance (King and Ajogwu, 2020). The King Code IV introduced
also an outcomes-based report, i.e. the integrated reporting, which
relies on a multi-capital view of the value creation process, where
inputs are transformed into outputs through company activities and
are transferred into the society as outcomes. In the same version of
the Code, the UN Sustainable Development Goals (SDGs), being
outcomes-based, have also been included.
The King Committee hence started discussing what should be the
outcomes of governance and agreed on four of them, namely, value
creation (in a sustainable manner), ethical culture with effective lead-
ership (meaning that directors are responsible for the company), ad-
equate and effective internal controls (the board has an informed
oversight of the management), and trust and confidence of the com-
munity in which the company operates.
 Corporate governance, integrated reporting  25
Japan
Japan has been a pioneer, together with South Africa, in revisiting its
corporate governance practices towards the inclusion of the princi-
ples of integrated reporting. After the 2008 financial crisis that hit the
worldwide economy, Japan also felt the need to revitalise its economy.
Hence, at the end of 2012, the government established the Headquar-
ters for Japan’s Economic Revitalization within the Cabinet with the
aim to formulate policy strategies able to reinvigorate the economic
system. As part of this project, approved in June 2013, the principles
for institutional investors to fulfil their fiduciary responsibilities have
also been discussed. The Financial Services Agency established then
the Council of Experts Concerning the Japanese Version of the Stew-
ardship Code which in 2014 released the Japan Stewardship Code. The
main aim of this Code was to set principles that institutional investors
and fund managers (that invest in Japanese listed shares) could adhere
to – on a voluntary basis – to fulfil their stewardship responsibilities
defined as “the responsibilities of institutional investors to enhance
the medium to long term investment return for their clients and benefi-
ciaries” (p. 1). Similarly to the King Code, it adopts a principles-based
and a ‘comply or explain’ approach. It is based on seven principles,
two of which are clearly aligned to integrated reporting. Principle 3 af-
firms that “institutional investors should monitor investee companies
so that they can appropriately fulfil their stewardship responsibilities
with an orientation towards the sustainable growth of the companies”,
while Principle 7 states that

To contribute positively to the sustainable growth of investee com-

panies, institutional investors should have in-depth knowledge of
the investee companies and their business environment and skills
and resources needed to appropriately engage with the compa-
nies and make proper judgments in fulfilling their stewardship
activities.
(p. 6)

Although not explicitly mentioned, integrated reporting can thus rep-

resent for Japanese institutional investors a useful vehicle through
which they can follow these principles in that it tells the value creation
story of companies by taking into consideration their strategies, gov-
ernance, performances based on six capitals and prospects. The Code
has been recently revised in 2017 by including a guidance on the role
of assets managers.
26  Corporate governance, integrated reporting
In addition to the Stewardship Code, in 2015 another fundamen-
tal document made its first appearance on the Japanese corporate
governance scene, the Corporate Governance Code. The Code has
always been conceived in the remit of the Japan Revitalization Strat-
egy to enhance corporate governance practices in the country. It has
been elaborated by the Council of Experts Concerning the Corporate
Governance Code with the Financial Services Agency and the Tokyo
Stock Exchange serving as joint secretariat.
It contains five General Principles, each of which is articulated in
Principles and Supplementary Principles, and it adopts a principles-
based, ‘comply or explain’ approach. Two of the Guiding Principles
can be of particular interest to integrated reporting – even though the
entire philosophy informing the document appears quite close to that
of integrated reporting in that it refers to corporate governance as “a
structure for transparent, fair, timely and decisive decision-making by
companies, with due attention to the needs and perspectives of share-
holders and also customers, employees and local communities” (p. 1).
According to Principle 3,

Companies should appropriately make information disclo-

sure in compliance with the relevant laws and regulations,
but should also strive to actively provide information beyond
that required by law. This includes both financial information,
such as financial standing and operating results, and non-
financial information, such as business strategies and business
issues, risk, and governance. The board should recognise that
disclosed information will serve as the basis for constructive
dialogue with shareholders, and therefore ensure that such in-
formation, particularly non-financial information, is accurate,
clear and useful.
(p. 2)

Hence, this principle moved into the direction of encouraging compa-

nies to disclose information beyond that of financial nature, because
this can facilitate the relationship with shareholders. It is in line with
the logic of an integrated report, according to which value is created
primarily for the organisation, and thus shareholders, in order to in-
form decision-making, and then, for the other stakeholders.

The importance of creating a dialogue with shareholders is also

reinforced in Principles 5 which states that “in order to contribute
to sustainable growth and the increase of corporate value over
 Corporate governance, integrated reporting  27
the mid- to long-term, companies should engage in constructive
dialogue with shareholders even outside the general shareholder
meeting”.
(p. 3)

Similarly to Principle 3, providers of financial capital are seen as con-

tributing, in a constructive manner, to the value creation process of an
organisation.
Finally, in 2017 the Ministry of Economy, Trade and Industry
(METI) released the Corporate Governance System Practical Guide-
lines (CGS Guidelines), which are aimed to support companies in
applying corporate governance principles. In 2018, the Corporate Gov-
ernance Code has been reviewed, and the Financial Services Agency
has finalised the Guidelines for Investor and Company Engagement,
which are meant to supplement both the Corporate Governance Code
and the Stewardship Code, by encouraging both institutional inves-
tors and companies to implement both Codes. In the same year, METI
announced some revisions to the Corporate Governance System Prac-
tical Guidelines. In March 2020, the Stewardship Code has also been
reviewed (after that the Expert Council called for it). The key change
asks institutional investors and fund managers to take into considera-
tion the Environmental, Social and Governance (ESG)factors in their
engagements in a medium and long perspective.

India
In June 2017, the Securities and Exchange Board of India (SEBI),
i.e. the non-statutory body that regulates the securities market, es-
tablished a multi-stakeholder Committee on Corporate Governance
(the so-called “Kotak Committee”) aiming to enhance the standards
of corporate governance of listed companies in the country. Among
other issues, the Committee was deemed to provide SEBI with rec-
ommendations regarding “disclosure and transparency-related is-
sues, with any” (Press Release no. 60/2017). This step followed of a
few months a Circular by the same body that encouraged the top 500
listed companies in India to adopt integrated reporting in line with the
International Organization of Securities Commissions (IOSCO)prin-
ciples of disclosure of material information to investors. In particular,
the Circular asked the 500 companies that are required to prepare a
Business Responsibility Report (BRR) to voluntarily implement inte-
grated reporting from the financial year 2017 to 2018, rather than only
a sustainability report, by including this information in the annual
28  Corporate governance, integrated reporting
report in a separate section, or by incorporating it in the Manage-
ment Discussion & Analysis, or by preparing a separate integrated
report (Circular, February 2017). In the case in which the information
in accordance with integrated reporting is not contained in the annual
report, it can be published on the company’s website and referenced.
The Business Responsibility Report, now called Business Respon-
sibility and Sustainability Report, is a document that has been made
mandatory by SEBI for the top 100 listed entities in 2012, and then
extended to the top 500 in 2015 and the top 1,000 in 2019 based on their
market capitalisation. It originally emanated from the National Volun-
tary Guidelines on Social, Environmental and Economic Responsibilities
of Business (NVGs) released in 2011 by the Ministry of Corporate Af-
fairs, Government of India, to provide guidance to businesses on what
is responsible business conduct. The Guidelines have been reviewed in
2018 and released under the new name National Guidelines on Respon-
sible Business Conduct (NGRBC) in 2019. The Business Responsibility
and Sustainability Report requires companies to report information
on their non-financial impacts, such as that on the environment, the
respect of human rights, and the stakeholder relationships.

Malaysia
Concurrently with the Indian example, in 2017 the Securities Commis-
sion of Malaysia has released the third version of the Malaysian Code
on Corporate Governance (MCCG), according to which large com-
panies are called to adopt integrated reporting based on the Interna-
tional <IR> Framework. More specifically, in Principle C on Integrity
in Corporate Reporting and Meaningful Relationship with Stakeholders,
Guidance 11.2, an integrated report is defined as “the main report from
which all other detailed information flows, such as annual financial
statements, governance, and sustainability reports” (p. 46). Hence,
the integrated report is seen as a means through which the organisa-
tion, and specifically the board, establishes good relationships with
stakeholders. This step follows the adoption by listed companies in
the country of some of the elements contained in the integrated report,
which include a better link between performance and strategy and in
general a better definition of the strategic priorities. Despite the above
most of the firms still conceive corporate reporting as a compliance
exercise, even though an improvement in the quality of the reports has
been noticed (PwC, 2018). Furthermore, the MCCG increased board
responsibilities towards the inclusion of the management in the prepa-
ration of the integrated report, the delegation of monitoring activities
 Corporate governance, integrated reporting  29
to ad hoc committees that should frequently monitor the process and
the identification of strategic guidelines.

The UK
In July 2018, the UK Corporate Governance Code has also under-
gone a revision together with the Guidance on Board Effectiveness.
The new version of the Code issued by the Financial Reporting Coun-
cil (FRC) (2018) broadens the definition of governance by emphasis-
ing the importance of stakeholder relationships, a clear purpose and
strategy for companies in alignment with a healthy corporate culture,
a high quality of the board with a focus on diversity, and a remuner-
ation which should be proportionate and support long-term success.
In specific regards to stakeholder relationships, Principle 1D calls for
the board to ensure effective engagement and encourages participa-
tion from both shareholders and stakeholders. In particular, it calls on
directors to “describe in their annual report how the interests of a wide
stakeholder community as set out in section 172 of the Companies
Act have been considered in board discussions and decision-making”
(Provision 5, p. 5). This way, it aligns to the view set out in the Interna-
tional <IR> Framework, which states that the report should disclose
information on how stakeholders’ needs and interests have been taken
into consideration and dealt with.
Provision 1 relating to Principle 1A-E underlines the board’s re-
sponsibility to “assess the basis on which the company generates and
preserves value over the long-term” and describes “the sustainability
of the company’s business model and how its governance contributes
to the delivery of its strategy” (p. 4). Thus, it implicitly refers to some
of the critical aspects of an integrated report, namely, the focus on
the long-term view of value creation and the centrality of the business
model and governance to ensure the achievement of the organisational
strategy.
Finally, the new UK Code emphasises the need for wider connec-
tivity between the information contained in the corporate govern-
ance report and in other parts of the annual report to improve the
decision-making of shareholders. It affirms that corporate govern-
ance reporting should “relate coherently to other parts of the annual
report – particularly the Strategic Report and other complementary
information – so that shareholders can effectively assess the quality
of the company’s corporate governance activities” (p. 3). In so doing,
it aligns to the principle of connectivity included in the IIRC Frame-
work, which refers to the interdependencies that exist between the
30  Corporate governance, integrated reporting
different set of qualitative and quantitative information, the capitals
and the short-, medium-, and long-term performance of a company.

Australia
As compared to other countries, in Australia the alignment of the
corporate governance code with the principles of integrated reporting
has occurred relatively recently, i.e. in 2019, but coming into force for
financial years commencing on, or after, 1 January 2020. However, the
approach undertaken has been quite robust. Probably, the most sig-
nificant changes are related to: (a) the substitution of the term ‘social
license to operate’ with the expressions ‘reputation’ and ‘standing in
the community’, and (b) the expansion of boards’ responsibilities.
As to the first aspect, it is interesting to note that it originated from
the willingness of the ASX (Australian Stock Exchange) Corporate
Governance Council to render the concept of ‘social licence to op-
erate’ more understandable (2019). In commenting on this shift, the
Council has in fact maintained that, while the terms ‘social license to
operate’ and ‘reputation’ and ‘standing in the community’ have to be
considered as synonymous, the latter is “more likely to be better un-
derstood and more consistently applied by listed entities, their boards
and other stakeholders” (Financial Review, 2019). Principle 3, Recom-
mendation 3.1, now reads

in formulating its values, a listed entity should consider what be-

haviours are needed from its officers and employees to build long
term sustainable value for its security holders. This includes the
need for the entity to preserve and protect its reputation and stand-
ing in the community and with key stakeholders, such as custom-
ers, employees, suppliers, creditors, law makers and regulators.
(p. 16)

This appears to be consistent with the <IR> Framework Guiding Prin-

ciple on ‘stakeholder relationship’, which calls for the importance for
the organisation to take into consideration and respond to the needs
and interests of stakeholders and, more in general, with the idea that
an organisation creates value for itself and the others (International
<IR> Framework, pp. 10–11, 17–18).
As to the second aspect, the board is asked to assume responsibility
for a new number of issues, such as defining organisational purpose,
ensuring alignment between remuneration policies and the entity’s
purpose, values, strategic objectives, and risk appetite and a stronger
 Corporate governance, integrated reporting  31
focus on the role of the board in overseeing management and, where
necessary, also challenging management. Principle 4, and Recommen-
dation 4.3 in particular, makes it clear that the board is responsible for
the processes used to verify the integrity of all ‘periodic corporate re-
ports’, and it states explicitly that the principles of integrated reporting
can be used in preparing existing reports, including the Operating &
Financial Review (OFR) (p. 20).
Furthermore, Principle 7 refers to the importance to the board to
establish a sound risk management framework. The Commentary to
Recommendation 7.2 asks the board to ensure that the risk manage-
ment framework deals with emerging risks, and specifically sustain-
ability and climate change risks (p. 27). Integrated reporting forms a
part also of Recommendation 7.4 of the Code – in addition to Recom-
mendation 4.3 – which looks at disclosure on environmental and social
risks and how an entity plans to manage such risks. It maintains

how an entity manages environmental and social risks can affect

its ability to create long-term value […] To make the disclosures
called for under this recommendation does not require a listed
entity to publish an “integrated report” or “sustainability re-
port”. However, an entity that does publish an integrated report
in accordance with the IIRC International <IR> Framework, or
a sustainability report in accordance to a recognised interna-
tional standard, may meet this recommendation simply by cross-
referring to that report.
(p. 27)

From the above, it can be drawn that integrated report is conceived as

a way for the board to better monitor the integrity of corporate disclo-
sure and the management of a wide range of risks.

Italy
In Italy, the Corporate Governance Code cannot be considered as one
of those that have already aligned to integrated reporting. Rather, it
could be said that this country is on its journey towards it. This jour-
ney started a couple of years ago, i.e. in 2018, when the word ‘sustain-
ability’ appeared for the first time among the criteria regarding the
stated role of the board of directors, and in particular the definition of
the risk profile of the company (Borsa Italiana Corporate Governance
Committee, 2018). In the 2020 version of the Code, a more explicit ap-
proach has been undertaken, and the expression ‘sustainable success’
32  Corporate governance, integrated reporting
has directly entered among the responsibilities of the board of direc-
tors Borsa Italiana Corporate Governance Committee, 2020). It is in-
deed possible to read “The board of directors leads the company by
pursuing its sustainable success. […] The board of directors promotes
dialogue with shareholders and other stakeholders which are relevant
for the company, in the most appropriate way” (Corporate Govern-
ance Code, 2020, p. 5).
Another new element introduced by the 2020 Code is the analysis of
the influence of sustainability on dialogue and involvement activities be-
tween the companies and their stakeholders. The relationship that the
companies must have with investors, especially of an institutional nature,
acquires distinct relevance in the Code, where Recommendation 3 spec-
ifies that the board should adopt specific policies of engagement. These
policies have to respond to the continuous request by investors for discus-
sion on both the conduct of the business and the corporate governance
structures. In this regard, the Code entrusts the Chairman of the board
with the two tasks of proposing to the entire administrative body, to-
gether with the CEO, the implementation of a specific engagement policy,
and of ensuring that the board itself is promptly informed of its contents.
In order to stress the relevance of the concept of sustainability, the
new 2020 Code also intervened on the remuneration policies of direc-
tors, the members of the corporate control body, and the top manage-
ment. It is specified that the task of the board of directors is also to
establish, assisted by the Remuneration Committee, a remuneration
policy aimed at pursuing the sustainable success of the company. In
particular, it should be noted that a significant part of this specific
policy must be linked to long-term performance objectives.
As to the internal control and risk management system, while in the
2018 version the word ‘sustainability’ was included in the criteria, in
the 2020 edition it is comprised directly in the principles. In this sense,
the board, assisted by an ad hoc committee, is called to be responsible
for integrating sustainability objectives into the preparation of the in-
dustrial plan of the company and/or the group it heads.

Conclusion
The chapter had the aim to offer a review of those national corporate
governance Codes that have included or started aligning their princi-
ples to those of integrated reporting. In particular, the cases of South
Africa, Japan, India, the UK, Malaysia, Australia, and Italy have
been illustrated.
 Corporate governance, integrated reporting  33
In this respect, it has been described how the South Africa case rep-
resents a unique example in that integrated reporting is mandatory for
listed companies.
From the analysis conducted, it appears clear that, although dif-
ferent paths and ways have been followed to achieve this goal, some
common features can be detected. More specifically, it can be noted
that three are the fundamental principles that have been most com-
monly aligned with, or included in, the different Corporate Govern-
ance Codes, namely the ‘stakeholder relationships’, the ‘risks and
opportunities’ and the ‘value creation’. The importance to the board
to take into consideration stakeholders’ voices has guided this process
of alignment in Australia, Japan, Malaysia, and the UK. Put it differ-
ently, in all the four countries the principles of integrated reporting
have been conceived as a vehicle through which the organisation, and
especially the board, could be able to better engage with both share-
holders and stakeholders. The new Australian Corporate Governance
Code has also referred expressly to the integrated reporting princi-
ples in order to rely on a sound risk management approach. Finally,
both the UK and Japanese Corporate Governance Codes have now
encompassed a conceptualisation of value, which is consistent with
that characterising integrated reporting, i.e. value has to be created
for the organisation and for the others and adopting a medium- and
long-term perspective.

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3 Corporate governance and
voluntary disclosure
A review of the literature

As discussed in the previous chapter, through a review of the corporate

governance Codes that have aligned, or are in the process of aligning
to the principles of integrated reporting, the link between corporate
governance and disclosure concerns various areas of application. This
chapter will be devoted to the major developments in the academic
and professional literature on the link between corporate governance
and voluntary disclosure. More specifically, it will analyse the most
significant studies in four main lines of enquiry, namely, corporate
governance and voluntary disclosure1 (generally conceived), corpo-
rate governance and sustainability reporting, corporate governance
and intellectual capital, and corporate governance and integrated re-
porting. The main observations will also be framed in light of the un-
derlying theoretical perspectives (agency, stewardship, and resource
dependence). As will be evident in the following sections, these four
categories should not be perceived as rigid, but several interconnec-
tions and overlapping can be identified among them. Therefore, the
main similarities and differences between the four areas emerging
from this review will also be outlined.

Corporate governance and voluntary disclosure

In the academic literature, the association between corporate gov-
ernance and voluntary disclosure has started to be investigated
mainly during the 1990s by taking into consideration variables such
as ownership structure (Craswell and Taylor, 1992; McKinnon and
Dalimunthe, 1993; Raffournier, 1995), the presence of independent
directors on the board (Forker, 1992; Malone et  al., 1993), and the
link to the inclusion of a discretionary set of information in annual
reports, initially proxied by earnings forecast (Clarkson et  al., 1994;
Healy and Palepu, 2001; Bhat et al., 2006) and then expanded to more
36  Corporate Governance, voluntary disclosure
strategic, forward-looking, and non-financial information (O’Sullivan
et al., 2008; Wang and Hussainey, 2013). Probably some of the key pio-
neer studies on this topic have been the ones by Jensen and Meckling
(1976), Fama and Jensen (1983), Williamson (1985) and Jensen (1993).
Jensen and Meckling (1976) hold that internal governance mecha-
nisms and practices are a fundamental tenet of agency theory in that
they can ensure that managers act in the best interest of shareholders.
This is particularly true in the presence of managerial ownership. In
such situation, managers are in fact encouraged to improve the level
and the quality of information, thus contributing to the creation of a
transparent information environment. Always in the context of agency
theory, Fama and Jensen (1983) further analyse the composition of the
board in a situation where there is a strong separation between own-
ership and control, which is where managers do not hold shares of the
company they work for. They observe that although the presence of
internal managers in the board can be seen as a guarantee for effective
decision-making since they have a “valuable specific knowledge about
the organization’s activity” (p. 314), it is with the appointment of out-
side directors that a company can actually improve the monitoring
role of the board. Their ‘independent’ nature can ensure the interests
of the organisation, and its shareholders, against the opportunistic be-
haviour of managers. On the contrary, a large size of the board can
exacerbate agency costs in that it can become a source of communica-
tion and coordination problems, thus decreasing the monitoring role
of the board towards managers (Jensen, 1993). Williamson (1985) de-
parts from the view that the board of directors should give prominence
to shareholders, but rather advances that it should act as an impartial
body. He suggests that it “should be regarded primarily as a govern-
ance structure safeguard between the company and owners of equity
capital and secondarily as a way by which to safeguard contractual
relations between the company and its management” (p. 298).
These preliminary yet fundamental studies on the role of corporate
governance in disclosure practices have then been expanded over the
years to the examination of other countries. Following the Asian fi-
nancial crisis that occurred during the 1990s, several scholars have
examined if and to what extent corporate governance has yielded to
a change in reporting practices. Ho and Wong (2001) investigated the
role of independent non-executive directors, audit committee, dom-
inant personalities (as a proxy of CEO duality) and family members
on voluntary disclosure in a sample comprising all listed companies
in Hong Kong. They found that, differently from previous studies, the
presence of a large proportion of outside directors does not influence
 Corporate Governance, voluntary disclosure  37
the disclosure of additional information, while the establishment of
an audit committee able to internally monitor managerial behaviour
does. The existence of a dominant personality embodied by the CEO
being also the Chairman has not resulted to be particularly signifi-
cant. This is mainly due to the fact that persons covering these roles
tend to be shareholders of the company, thus a separation or not of
the roles does not affect its level of disclosure. Differently from this,
the presence of a family-controlled board is found to negatively in-
fluence corporate disclosure transparency. A higher proportion of
family members on the board tend to lower the inclusion of voluntary
information.
Always in the Asian setting, and particularly in Singapore, Eng
and Mak (2003) focussed on the impact that ownership structure and
board composition can have on corporate disclosure and particularly,
on the voluntary disclosure of strategic, non-financial, and financial
information in financial statements. In order to do so, three types of
ownership structure are taken into consideration, namely, managerial
ownership, conceived as the proportion of ordinary shares held by
the CEO and executive directors, blockholder ownership, intended as
the proportion of ordinary shares held by the majority of sharehold-
ers, and government ownership, which relates to the participation of
the government in private companies. As for the composition of the
board, it is measured by the percentage of external non- executive di-
rectors on the board. In terms of control variables, they control for
the impact of growth opportunities, company size, debt, industry, the
reputation of the auditors, the follow-up of the analysts, the trend of
the share prices, and the propensity to disclose the company infor-
mation. Based on a sample of 158 listed companies in Singapore in
1995, it resulted that the disclosure of voluntary information in fi-
nancial statements increases when managerial ownership is reduced,
while government ownership is significant. The total ownership of
the block holder is not found to have an impact on this type of dis-
closure. As for board composition, the presence of a large proportion
of external directors reduces voluntary disclosure. This is deemed to
a ‘substitute relationship’ that exists between external directors and
disclosure. Indeed, external directors can act as monitoring actors so
as voluntary disclosure. With regard to the financial and economic
characteristics of companies, the authors observed that larger and
less indebted firms tend to issue more information on a voluntary
basis. Gul and Leung (2004) examined the links between board
structure, the presence of experienced external directors and the de-
cision to issue voluntary information in annual reports. To do so,
38  Corporate Governance, voluntary disclosure
the examination has considered CEO duality, which relates to those
situations when CEOs act jointly as board chair, and the percentage
of experienced external directors on the board, which corresponds
to those directors who sit on boards of other ‘unrelated’ companies.
Analysis of observations of 385 Hong Kong listed companies in 1996
shows that the concentration of power by the CEO, represented by
his/her duality, is associated with lower levels of voluntary corpo-
rate disclosure. In addition, not only the presence of Non-Executive
Directors (NEDs) but their experience negatively influences the in-
clusion of voluntary information, in virtue of the higher degree of in-
dependence and competence that is attributed to the board. However,
in the presence of a CEO duality, a large proportion of experienced
NEDs can mitigate the negative association that exists with volun-
tary disclosure. Huafang and Jianguo (2007) examine the impact of
the ownership structure and composition of the board of directors
on the voluntary communications of listed companies in China.
With the advent of a more aggressive competition by foreign com-
panies, the government has in fact started to improve its corporate
governance policies to prepare Chinese companies. In this respect,
companies are required to include at least two independent directors
on the board. In addition, these are called to comment on the ade-
quacy of management actions in the company’s annual reports. The
sample is composed of 559 company observations from 2002. The re-
sults show that increased ownership of block holders and ownership
of foreign stocks are associated with increased disclosure. However,
managerial ownership, state ownership, and legal entity ownership
are not related to disclosure. An increase in independent directors
increases the disclosure of corporate information, and the duality of
the CEO is associated with less disclosure. The document also notes
that larger companies had greater disclosure, while companies with
growth opportunities are reluctant to disclose information voluntar-
ily. In summary, it turns out that greater ownership of block owners
and significant foreign equity ownership are associated with greater
voluntary disclosure. Managerial ownership, state ownership, and le-
gal entity are not related to disclosure. An increase in the number of
outsider directors improves voluntary disclosure and the duality of
the CEO reduces disclosure. In replicating the study by Ho and Wong
in the Malaysian context, Akhtaruddin et  al. (2009) indicated that
board size, independent non-executive directors and the amount of
outside ownership are positively and significantly associated with vol-
untary disclosure, while family control negatively influences it. Dif-
ferently from Ho and Wong, they observe that internal monitoring
 Corporate Governance, voluntary disclosure  39
through audit committee members on the board does not affect this
type of disclosure.
Moving to the European setting, and specifically to the Italian one
which is characterised by a control function conducted by compa-
nies’ owners and in general by a concentration of ownership as well
as a perceived lack of independence of outside directors and a weak
protection of small investors, Patelli and Prencipe (2007) examine
the association between the existence of independent directors on the
board and voluntary disclosure in 175 non-financial Italian companies
characterised by the presence of dominant shareholders. This is be-
cause dominant shareholders are expected to mitigate agency-related
problems. They observe that a positive relationship exists, i.e. internal
control provided by independent directors tend to co-exist with exter-
nal control provided by voluntary disclosure. Thus, contrary to Eng
and Mak (2003) no substitution effect emerges. These results could
also be amenable to the stricter definition of independent directors
that the authors have followed, i.e. the one that excludes interlock-
ing directorates and directors that sit on the same board for a long
period. Allegrini and Greco (2013) investigated the relationship be-
tween corporate governance mechanisms, in terms of both structure
and functioning, and voluntary disclosure. In analysing a sample of
177 Italian non-financial and listed companies in 2007, they found that
voluntary disclosure in annual reports is influenced by larger boards
that meet more frequently, but their composition as well as the pres-
ence of committees and lead independent directors do not impact it.
The frequency of audit committees’ meetings is also a factor which
relates to additional discretionary disclosure. CEO duality is nega-
tively, though poorly, associated with it. In general, this suggests that
it becomes fundamental for companies to combine internal and ex-
ternal controls. Donnelly and Mulcahy (2008) investigated the role of
board composition (proportion of non-executive directors), CEO du-
ality, concentration of outside/managerial ownership on the voluntary
disclosure of Irish companies. Ireland represents a unique case study
in that it is influenced by both the UK and the US. Its legal and insti-
tutional environments are similar to those of the UK, but the business
is permeated by the US culture through investments in Irish compa-
nies. The investigation has centred on 51 listed companies as of June
2002. Findings support the view that the greater the number of non-
executive directors sitting on the board is, the greater is the tendency
of companies to report information other than the mandated one. Dif-
ferently from other studies, no evidence is found for the interrelation-
ship with CEO duality and ownership concentration (both internal
40  Corporate Governance, voluntary disclosure
and external). In focussing on ownership concentration, Makhija and
Patton (2004) examined the Czech context in a year of change, 1993.
Until 1993 the ownership structure of Czech companies was largely ex-
ternal, and their annual financial report was voluntary in nature. The
newly privatised companies hence represent an ideal setting where to
test this relationship. Results from a sample of 43 non-financial firms
illustrate that ownership and especially, investment fund ownership is
a fundamental component influencing voluntary disclosure only when
the concentration is low. In Spain, Arcay and Vazquez (2005) observed
that ownership structure, cross-listing (in foreign markets included)
and the presence of independent directors have an influence on cor-
porate disclosure, and firm size results to be a significant determinant
but with no effect on the adoption of good corporate governance prac-
tices. Similarly, belonging to a regulated industry does not affect the
provision of voluntary information.
Barako et  al. (2006) examined voluntary disclosure in a develop-
ing country, Kenya, where the government has initiated over the past
decade several reforms on the Nairobi Stock Exchange in order to in-
centivise domestic savings and attract foreign capital. To do so, they
examine the role of non-executive directors, of an audit committee
and board leadership in a sample of listed companies between 1992
and 2001. It is observed that the presence of an audit committee and of
institutional and foreign ownership is associated with this corporate
attitude, while non-executive directors are negatively associated and
board leadership is not.
In Australia Lim et  al. (2007) concur with those previous studies
that have found that the presence of an independent board positively
influences voluntary disclosure, even though with a caveat. From the
examination conducted on 181 companies, they observe that the asso-
ciation of board composition differs on the nature of information re-
leased. In particular, the presence of outside directors impacts on the
choice of firms to include forward-looking and strategic information
on their annual reports. No evidence is found on non-financial and
historical financial set of information.
From the analysis conducted (summarised by Table 3.1), it is possi-
ble to note that it is difficult to identify a set of corporate governance
internal variables able to generally explain the linkages with voluntary
disclosure by companies. The presence of outside directors is probably
the most adopted one, even though it has been demonstrated that its
influence can sometimes diminish in situations where a substitution
effect exists. As for ownership structure, this can be dependent from
the economic, and legal context it is analysed. No homogeneous view
 Corporate Governance, voluntary disclosure  41
Table 3.1 Summary of main studies that have investigated the relationship
between corporate governance and voluntary disclosure (focus on
outside/inside directors)

Authors Theoretical Influence of outside Influence of

framework directors on voluntary inside directors on
disclosure voluntary disclosure

Ho and Wong Agency No influence –

(2001)
Eng and Mak Agency Negative –
(2003) (substitution effect)
Gul and Leung Agency Negative (by –
(2004) experienced NEDs)
Huafang and Agency Positive –
Jianguo (2007)
Akhtaruddin Agency Positive –
et al. (2009)
Allegrini and Agency Positive (by both –
Greco (2013) internal – auditing
committee – and
external control)
Patelli and Agency Positive (stricter –
Prencipe definition of
(2007) independent
directors)
Donnelly and Agency Positive –
Mulcahy
(2008)
Makhija and Agency – –
Patton (2004)
Arcay and Agency Positive –
Vazquez
(2005)
Barako et al. Agency Negative –
(2006)
Lim et al. (2007) Agency Positive (for –
forward-looking
and strategic
information)

Source: Author’s elaboration.

is achieved not even with reference to CEO duality. Interestingly to

note, agency theory is the underlying one for all the papers here in-
vestigated. This further reinforces the assumption, already mentioned
in Chapter 1, that agency theory tends to privilege the presence of
non-executives, independent directors in order for the board to exert
its control function on managers.
42  Corporate Governance, voluntary disclosure
Corporate governance and sustainability reporting
The relationship between corporate governance and corporate social
responsibility has been a widely debated one in the literature. Scholars
and professionals have been interested in studying this possible asso-
ciation in different countries and sectors. This growing attention can
be amenable to the occurrence of several corporate scandals, such as
Enron and WorldCom that have heavily impacted on the international
financial system. As a consequence, the interest by many (shareholders
and stakeholders in general) has been directed to the way companies
are governed. As anticipated in Chapter 1, corporate disclosure has
been subject to an evolution that goes hand-in-hand with corporate
governance. The culture that permeates from the board to the whole
organisation impacts on the decision to report on a wider set of dis-
cretionary information that go beyond the mandated one. In turn, the
reporting process affects the way the board of directors think and act.
Hence, it is not surprising that the debate has shifted towards the rel-
evance of non-financial factors, Environmental, Social and Govern-
ance (ESG) and intangibles aspects, and to long-term value creation,
both for the boardroom and for corporate reporting (Ceres, 2015, 2017,
2018a, 2018b, 2019; FCLT Global, 2019; WBCSD, 2020).
This shift has also nurtured the academic debate, even though
mainly starting from mid of the 2000s. Money and Schepers in 2007
noted that “there is little existing knowledge from a corporate per-
spective as to the extent of alignment between corporate governance
and CSR” (p. 5). Some previous studies have used proxies, such as
the country of origin (Laan Smith et  al., 2005), later ones a limited
number of corporate governance variables (Haniffa and Cooke,
2005; Faisal et al., 2012). Others have investigated the impact of wide
range of variables on the environmental performance on companies,
but not on their reporting practices (Wang and Coffey, 1992; Webb,
2004; Bear et  al., 2010; De Villiers et  al., 2011; Shaukat et  al., 2016;
Cuadrado-Ballesteros et  al., 2017). Following these pioneer studies,
Prado-Lorenzo et al. (2009) in the Spanish context represented by 99
non-financial listed companies observed that social disclosure can
largely be explained by the pressure exerted by stakeholders as well as
dispersed ownership structure. This is further reinforced by the pres-
ence of external directors on the board.
Michelon and Parbonetti (2012) examined the relationship between
board composition, leadership, and structure and the disclosure of
sustainability-related information in a comparative exercise between
Europe and the US. Similarly to previous studies, they depart from
 Corporate Governance, voluntary disclosure  43
the premises that a good corporate governance can represent a ve-
hicle towards a better communication with stakeholders. It is in fact
the board that takes decisions and enacts disclosure policies. They
demonstrate that the traditional difference between insiders and in-
dependent directors is not sufficient to understand this relationship.
The specific characteristics of each director then become fundamen-
tal. The sample is constituted by 57 Dow Jones Sustainability Index
(DJSI) companies. From a methodological viewpoint, the disclosure
index takes into consideration the contents not only on the annual re-
ports, but also on other types of independent reports, such as social,
environmental, and sustainability reports. Sustainability information
is classified into four groups: strategic, financial, environmental, and
social information. It is found that the composition of the board of
directors, measured as the percentage of influential members of the
community, positively affects sustainability, the environment, and
strategic disclosure, and positively affects the choice to disclose in-
formation in independent reports. More specifically, it is not the large
proportion of independent directors that influences the quantity and
quality of sustainability information, rather their background. A pos-
itive association is generally found between the so-called community
influential and sustainability disclosure – in separate reports – but
also with two of the sub-categories of information that make up the
total disclosure index, environmental, and strategic information. This
is amenable to their ability to affect reporting media. A weak evi-
dence is found for the relationship between the presence of a commit-
tee or CSR director and the disclosure of social information. In the
US context Mallin et al. (2013) examined the impact of the corporate
governance model on social and environmental disclosure. They cen-
tre the investigation on the top 100 US Best corporate citizens in the
period 2005–2007 and examine both the quality and the quantity of
social and environmental information in order to understand whether
the disclosure can be seen as a real commitment by the board towards
stakeholders or as a signal or a legitimacy tool. They found that a
strong monitoring function exercised by the board increases this type
of disclosure In the post- Sarbanes–Oxley Act (SOX) US context,
Zhang et al. (2013) demonstrate that two are the key components of a
board to adopt CSR disclosure, independence, and diversity in terms
of presence of women.
The work by Khan et al. (2013) has probably been one of the first
one on the investigation between the effect that the board of directors
can have on corporate social responsibility disclosure, especially in an
emerging market, i.e. in the annual reports of Bangladesh companies.
44  Corporate Governance, voluntary disclosure
To put it differently, they aim to understand whether corporate gov-
ernance can be seen as a determinant for ensuring, if not improving,
corporate legitimacy. This is of particular interest because also Bang-
ladesh has adopted a Western-style model of corporate governance
which encourages directors’ independence, the separation between the
CEO and the Chairman as well as the establishment of an audit com-
mittee. To do so, variables such as ownership structure (managerial,
public, foreign), the independence of the board of directors, the duality
of the CEO and the presence of the audit committee have been taken
into consideration. The period covered four years from 2005 to 2009.
They observe that although there is a negative association with mana-
gerial ownership, this turns into a positive association and significant
for export-oriented companies. This is probable due to the pressure
exerted by stakeholders to rely on a broader set of information in their
decision-making processes. Also public ownership, foreign ownership,
independence of the board of directors and the presence of the audit
committee have positive effects on the CSR disclosure. On the con-
trary, CEO duality does not have any effect. Lone et al. (2016) in exam-
ining this possible association in the annual and sustainability reports
of Pakistani companies, after the introduction of the CSR voluntary
guidelines by the Securities and Exchange Commission of the country
aimed at encouraging companies to disclosure this type of informa-
tion, observe that board independence, diversity (in terms of gender)
and size affect this decision.
On the risk side, Peters and Romi (2014) examine the corporate gov-
ernance characteristics associated with the voluntary disclosure of
greenhouse gases by US companies in the period from 2002 to 2006.
In particular, they focus on the existence of an environmental and
an audit committee as accompanied by the presence of a Chief Sus-
tainability Officer (CSO) considered as an executive-support position,
whose experience is examined. According to the authors, the exper-
tise of a CSO can be distinguished between ‘reactive’, when he/she has
public relations expertise and ‘proactive’ when the expertise relies on
environmental and social basis. They observe that the presence of an
environmental committee is a determinant for the decision to release
GHG disclosure; however, once the decision is taken, its role dimin-
ishes disclosure transparency. As for the presence of a CSO, it appears
to be key in terms of transparency, but not for the decision to report
this set of information. More generally, the size and the activity of
the environmental committee and its overlap with an audit committee
positively influence GHG disclosure.
 Corporate Governance, voluntary disclosure  45
In Europe, and specifically in Spain, Fuente et  al. (2017) examine
the disclosure of CSR-related information according to the Global
Reporting Initiative (GRI) standards in a sample of 98 non-financial
listed Spanish companies over a six-year period. They point out that
the presence of independent and proprietor directors is key in encour-
aging companies in implementing this disclosure practices. Further-
more, in terms of CSR standards adopted, the existence of a CSR
committee is correlated to the GRI ones. Ramon-Llorens et al. (2019)
further refine the analysis of board characteristics and point out that
CEO power is key in encouraging outside directors, and specifically
business experts and support specialists in adopting CSR reporting.
However, it is not sufficient to compensate the negative effect of direc-
tors with political ties. In the UK, Jizi (2017) investigates this linkage
in a sample of FTSE 350 firms for a five-year period. It is noted that
board independence as well as women presence are a determinant for
CSR reporting.
In Australia, Rao and Tilt (2016) investigate the extent to which
board composition, and in particular its diversity, impacts on CSR
reporting by taking into consideration five corporate governance var-
iables, namely, independence, tenure, gender, multiple directorships,
and overall diversity measure. The sample is composed of 150 listed
companies over a three-year period. It is observed that all the varia-
bles positively affect this type of reporting disclosure, with the excep-
tion of independent directors.
In enlarging the sample to a cross-national one, Ibrahim and An-
gelidis already in 1995 outlined that differences between inside and
outside directors exist vis-à-vis the so-called corporate social respon-
sibility orientation and financial performance. Outside directors result
to be more inclined to consider ESG factors, rather than traditional
economic and financial ones. This has been confirmed also in organ-
isations operating in the service industry (Ibrahim et  al., 2003) and
more recently, by the meta-analysis of the literature conducted by
Guerrero-Villegas et  al. (2018), even though the latter further notice
that this linkage can be influenced by the institutional setting – level of
commitment to sustainable goals.
Also in the case of CSR disclosure, no convergence is achieved on
the features that can encourage companies to disclose sustainability-
related information (Table 3.2). Interestingly to note, the independ-
ence of the board has emerged as being a variable that is in most
of the cases positively associated with it under different theoretical
assumptions.
46  Corporate Governance, voluntary disclosure
Table 3.2 Summary of main studies that have investigated the relationship
between corporate governance and CSR disclosure (focus on
outside/inside directors)

Authors Theoretical Influence of Influence of

framework outside directors on inside directors on
voluntary disclosure voluntary disclosure

Prado-Lorenzo Stakeholder Positive –

et al. (2009)
Michelon and Resource- Positive (community –
Parbonetti dependence influential)
(2012)
Mallin et al. Agency Positive –
(2013)
Zhang et al. Legitimacy Positive –
(2013)
Khan et al. Legitimacy Positive –
(2013)
Lone et al. Agency Positive –
(2016)
Peters and Agency – –
Romi (2014)
Fuente et al. Legitimacy Positive –
(2017) and
stakeholder
Jizi (2017) Agency Positive –
Rao and Tilt Agency Unclear –
(2016)
Ibrahim and – Positive –
Angelidis
(1995)
Ibrahim et al. – Positive –
(2003)
Guerrero- – Positive –
Villegas
et al. (2018)

Source: Author’s elaboration.

Corporate governance and intellectual capital reporting

The disclosure of value creation and intellectual capital has received
increasing attention from companies around the world. This is mainly
due to the new economy, which is a knowledge-based economy where
value creation becomes one of the crucial issues in the world and tends
to be based on intangible rather than tangible assets. Intellectual cap-
ital is increasingly important in creating and maintaining competitive
advantage and stakeholder value. However, financial statements do not
 Corporate Governance, voluntary disclosure  47
always reflect such a wide range of sources of value creation, resulting in
information asymmetries between businesses and users. This creates in-
efficiencies in the process of allocating resources in capital markets. As
a result, markets increasingly require more disclosure of non-financial
information and investment indicators of intangible assets.
In the European context, Cerbioni and Parbonetti first (2007) and
Li et al. (2008) after, found that some corporate governance variables
can influence the disclosure (in terms of quantity and/or quality) of
intellectual capital. In a sample of 54 European biotechnology firms
listed on the stock market of a European country, Cerbioni and Par-
bonetti (2007) have analysed the impact of a company’s board size,
composition (in terms of proportion of independent outside directors),
CEO duality, and board structure on the type and amount of intellec-
tual capital an organisation discloses. The examination is conducted
on their Operating Financial Reviews in the period from 2002 to 2014
(included). Evidence demonstrates that board structure, CEO duality,
and size are negatively correlated with disclosure, while the proportion
of independent directors is positively associated. However, in terms of
quality of the disclosure, it is found that the presence of independent
directors affects only information on internal capital. This is not the
case for the disclosure of forward-looking information and bad news.
Li et  al. (2008) have examined if and how the corporate governance
characteristics of 100 UK firms listed on the London Stock Exchange
and belonging to seven intellectual capital-intensive industries can
influence intellectual capital disclosure in annual reports. The time
period is for financial year-ends between March 2004 and February
2005. Taking into consideration five characteristics (board composi-
tion in terms of proportion of independent non-executive directors,
role duality, ownership structure/share concentration, audit commit-
tee size, and frequency of meetings), they observe that role duality is
not found to influence intellectual capital disclosure and that share
ownership concentration is negatively associated with it, meaning that
in the presence of dominant shareholders there is less pressure for the
reporting of this type of information. The other three variables are
found to be significantly and positively associated. As for the influence
that corporate governance mechanisms have on the disclosure on the
three sub-categories of intellectual capital, human, structural/organ-
isational, and relational, it results that the presence of independent
non-executive directors results in the disclosure of more information
related to human, structural, and relational capitals, while the pres-
ence of block shareholders appears to lead to more disclosure on rela-
tional capital.
48  Corporate Governance, voluntary disclosure
In Italy, Baldini and Liberatore (2016) study the association between
some corporate governance internal mechanisms and the level of in-
tellectual capital disclosure in general and of its main components,
investigating the annual reports of 172 listed companies on 31 Decem-
ber 2010. Their findings indicated that only board size and board in-
dependence have a significant positive effect. In Portugal, Rodrigues
et  al. (2017) explore the influence of boards of directors on the vol-
untary disclosure of information concerning intellectual capital of
15 listed companies over a period of five years during the Portuguese
financial crisis. In analysing IC disclosure in annual, sustainability,
and integrated reports, they find that it remains constant even during
this particular time. More specifically, it increases with dual corpo-
rate governance models and with a larger board size up to a maxi-
mum point (thus confirming a quadratic relationship) but is reduced
by CEO duality and by a higher proportion of independent directors
on boards. The presence of women on the board is not found to be
statistically significant. In Spain, Tejedo-Romero et al. (2017) analyse
the sustainability reports of the 25 listed companies on IBEX 35 share
market index over a period of five years (2007–2011). More specifically,
they examine the effect of the board size, board activity, board inde-
pendence and ownership concentration on Intellectual Capital Disclo-
sure (ICD). Their results find that a higher presence of women in the
board is positively associated with ICD. On the contrary, board activ-
ity and the presence of external independent directors are negatively
associated. Board size and ownership concentration are not found to
be significant.
In developing countries, Abeysekera (2010) explores the influence of
board size on six types of ICD, conducting this analysis on the annual
reports of the top 26 Kenyan listed companies in 2002 and 2003. It is
demonstrated that the firms with larger boards tend to disclose more
information on strategic human capital and tactical internal (organi-
sational) capital, while no influence is shown between board size and
external (relationship) capital. The presence of independent directors
results to be significant on ICD and in particular on tactical human
capital when they sit on committees other the audit one. The positive
impact of board size on the ICD disclosure is also confirmed in the
Mexican context by the study of Hidalgo et al. (2011), even though in
quadratic terms (larger boards yield benefits up to a point). In contrast,
they find a negative association with shareholding by institutional in-
vestors as well as by the company. No association is indicated with
board independence and the size of the audit committee. In Malaysia,
 Corporate Governance, voluntary disclosure  49
Taliyang and Jusop (2011) carried out an investigation to study the ex-
tent of disclosure of intellectual capital and the relationship between
this disclosure and corporate governance variables in a sample of 150
companies listed in Bursa in Malaysia, covering five sectors (IT, con-
sumer product, industrial product, services, and finance). Malaysian
companies should in fact disclose intellectual capital in their annual
reports on a voluntary basis. The independent variables tested in
this study include various forms of corporate governance structure,
namely, the composition of the board of directors, CEO duality, size
of the audit committee and frequency of meetings of the audit com-
mittee. It is found that the majority of the companies examined in-
clude intellectual capital information in their annual reports (mainly
in financial statements and in the notes to the financial statements,
director’s report, the corporate governance statement, and other op-
erational reports). This is particularly the case of knowledge-intensive
sectors, such as the financial and the IT ones. As for the four corporate
governance variables tested, only the frequency of meetings of the au-
dit committee has demonstrated a significant positive relationship in
influencing the level of disclosure of intellectual capital in Malaysia,
while there is no significant relationship between the composition of
the board of directors, dual role of the CEO, and the size of the audit
committee. It shows that the more regular meetings the company held,
the more it encourages directors to disclose voluntary information
in their annual report. In the same country, Haji and Ghazali (2013)
explored the extent and quality of ICD by top listed companies on
Bursa Malaysia for the period 2008–2010. The results suggest that all
the corporate governance variables taken into consideration, namely,
board size, independent directors, board effectiveness, and position of
the Chairman (except family members on the board), do explain the
extent and quality of ICD. Director ownership is not related to both
the extent and quality of ICDs. Government ownership is only mar-
ginally significant.
Finally, in an emerging country such as Bangladesh, the research
by Muttakin et  al. (2015) confirms that family ownership negatively
affects ICD as well as family duality. This strong influence by the fam-
ily renders the presence of CEO duality neutral. Foreign ownership,
board independence, and the presence of an audit committee posi-
tively influences the disclosure of this type of information.
Similarly to the review conducted on linkages between corporate
governance, voluntary, and CSR disclosure, also in the case of intel-
lectual capital, there is no consensus on what are the key determinants
50  Corporate Governance, voluntary disclosure
(Table 3.3). The proportion of outside directors has shown to be the
most investigated variable and in the majority of cases is found to be
positively associated with this type of reporting practice. However, the
same cannot be said with reference to the quality of information dis-
closed. The presence of women in the boardroom has also resulted to
be one of the characteristics that positively influences the reporting
of intangibles-related information. From a theoretical perspective, it
is possible to observe that the positive association between boards’
independence and intellectual capital reporting is mostly explained in
light of agency theory. Some studies have outlined that it can become
negative if a resource-based theory is adopted (either in conjunction
or not).

Table 3.3 Summary of main studies that have investigated the relationship
between corporate governance and intellectual capital disclosure
(focus on outside/inside directors)

Authors Theoretical Influence of Influence of

framework outside directors on inside directors
voluntary disclosure on voluntary
disclosure

Cerbioni and Agency Positive –

Parbonetti
(2007)
Li et al. (2008) Agency Positive –
Baldini and Agency Positive –
Liberatore
(2016)
Rodrigues Agency and Negative –
et al. (2017) resource-based
Tejedo- Resource- Negative –
Romero dependence
et al. (2017)
Abeysekera Resource- Positive –
(2010) dependence
Hidalgo et al. Agency No association –
(2011)
Taliyang Agency No association –
and Jusop
(2011)
Haji and Agency Positive –
Ghazali
(2013)
Muttakin Agency Positive
et al. (2015)

Source: Author’s elaboration.

 Corporate Governance, voluntary disclosure  51
Corporate governance and integrated reporting
Despite the inherent link that exists between corporate governance
and integrated reporting, to date only a peripheral number of studies
have investigated which are the board characteristics that can act as
determinants of the voluntary adoption and, or the quality, of inte-
grated reporting (Eccles and Serafeim, 2011; Mähönen, 2020).
As for the former, Frias-Aceituno et  al. (2013) analysed a sample
of 568 companies from 15 countries, for the period 2008–2010. They
argue that some board characteristics (board size, board diversity, the
composition of the board) in reducing the information asymmetries
between managers and stakeholders can impact on the decision to dis-
close integrated information. The results of this study show that only
board size and board gender diversity have a role in the decision of
companies to publish the integrated reporting. The same results are
confirmed by a later study by Fiori et al. (2016), which examines only
the firms participating in the IIRC Pilot Programme launched by the
IIRC in 2011 with the aim to encourage the development of integrated
reporting and create a common framework. Two samples of European
companies are taken into consideration, a sample of 35 companies that
joined the pilot programme in 2011 which has been confronted with
a sample of 137 companies that did not join. The governance varia-
bles that have been used are the size of the board, frequency of meet-
ings, the presence of non-executive directors, of a block holder and of
women. The size of the board and the presence of women are found
to be two main determinants in the decision of companies to join the
pilot programme. The frequency of meetings is positive but not sta-
tistically significant. As for the role of independent directors and the
presence of a block holder, they are associated with a lower probability
of joining the programme. Also Alfiero et al. (2017) in focussing on the
European setting observed that in a sample of 1,047 companies from
18 countries adopting this reporting tool in 2015 board size, the pres-
ence of women and an average age of 55 years of board members are
positively associated. Girella et al. (2019) extend the latter works ana-
lysing the companies considered <IR> Reporters by the IIRC accord-
ing to the <IR> Examples Databases. However, they found that only
the size of the board is a determinant, while the presence of women
and of independent directors is not. Garcia-Sanchez et al. (2019) have
investigated this possible association in a munificence context, which
is when an industry witnesses an abundance of resources. By means
of a principal component analysis of board characteristics that syn-
thetises its effectiveness, namely, independence, gender diversity,
52  Corporate Governance, voluntary disclosure
experience, expertise, and the probability of referring an external con-
sultants applied to an international sample composed of 956 firms be-
longing to different industries and 27 countries through a longitudinal
period (2006–2014), they observed that the strength of the board can
diminish the discretionary role of managers in disclosing less volun-
tary information. Suttipun and Bomlai (2019) carried out a study to
investigate the extent and level of integrated reporting in the annual
reports of Thai stock exchange listed companies between 2012 and
2015 through a random sample of 150 companies. The results did not
find a significant correlation between the level of integrated report-
ing and family-owned companies, government-owned companies, the
percentage of independent members of the boards of directors and the
duality of CEOs. This can be related to the lack of regulations that re-
quire reporting in developing countries, so that there is no pressure on
companies to carry out voluntary relationships, including integrated
reporting.
In the impression management strategies literature, Melloni et  al.
(2016) and Busco et al (2019), adopting a manual content analysis and
a statistical investigation of all the reports identified as emerging prac-
tices in the IIRC Examples Database and in the Stoxx Europe 600
Index for the period 2002–2015, document, respectively, the drivers
of the tone of business models and the different levels of information
integration. In the first study, the authors find that bigger boards in-
fluence the positive tone of business model disclosure, thus decreasing
the reports’ transparency and increasing the possible manipulation of
information by management. The presence of independent members
in the auditing committees is not significantly associated. The results
of the second study confirm that only board size influences the levels
of integration, but the frequencies of meetings and the independence of
the boards do not. Stacchezzini et al. (2016) concur with the results of
these works in advancing that impression management strategies can
drive the adoption of integrated reporting. On the contrary, Lai et al.
(2016) maintained that the companies joining the IIRC Pilot Pro-
gramme have not decided to do so for legitimacy reasons.
Moving to the quality of the reports, Barth et al. (2017) in the South
African setting examine the capital markets and real effects asso-
ciated with the quality of integrated reporting. By using data from
the 100 top listed companies on the Johannesburg Stock Exchange
ranked as leading practices by E&Y, they observe that quality is asso-
ciated with liquidity and expected future cash flows, but not with cost
of capital. Wang et al. (2020), integrating economic-based and socio-
political theories, investigate the relationship with traditional and
 Corporate Governance, voluntary disclosure  53
sustainability-oriented corporate governance mechanisms and the
credibility of integrated reporting in the South African context. Their
results show that traditional corporate governance measures such as
the quality of the board and the audit committee (intended as a com-
posite score of independence, diligence, size, and expertise of both)
have a lower impact than the presence of a high-quality sustainabil-
ity committee and non-financial performance measures in executive
compensation. In an international sample of 134 firms selected from
the Leading Practices and the <IR> Reporters section of the IIRC Ex-
amples Database, Vitolla et al. (2020) found that size, independence,
gender diversity, and activity of the board determine a high quality
of the documents, while the presence of a CSR committee does not.
In focussing on the quality of a particular but fundamental element
of integrated report, materiality, Fasan and Mio (2017) documented
that the board size and gender diversity are negatively associated with
it, while positively with board independence, activity, and the pres-
ence of civil law. Gerwanski et al. (2019), in replicating the study of
Fasan and Mio by taking into consideration the only variable gender
diversity (as for corporate governance) in an international sample of
companies for a later period (2013–2016), found that gender diversity
is positively associated with the quality of materiality. In a similar
vein, Kılıç and Kuzey (2018) examined if corporate governance inter-
nal mechanisms can influence the disclosure of another fundamen-
tal concept of integrated report, forward-looking information. In a
sample of 55 non-financial firms extracted from the <IR> Examples
Database for the year 2014, they found that only gender diversity is
significantly and positively associated with the total, quantitative, and
qualitative forward-looking disclosure. Board size and board compo-
sition are not. This is consistent with those previous studies according
to which the presence of different backgrounds and ethnicities has
become a relevant tenet of corporate governance. As for the potential
relationship between corporate governance and integrated reporting
quality, measured as the assurance of these reports, Kılıç et al. (2019)
found that less effective boards tend to yield companies to privilege
this practice.
When it comes to an innovative accountability tool, as integrated
reporting can be, corporate governance attributes result to impact in
a different ways on its adoption on the basis of the underlying theoreti-
cal framework. If the presence of a diverse board (existence of women)
is able to explain in the majority of cases of implementation and also
of quality, the same cannot be said with reference to board independ-
ence (Table 3.4) (Velte and Gerwanski, 2020).
54  Corporate Governance, voluntary disclosure
Table 3.4 Summary of main studies that have investigated the relationship
between corporate governance and integrated reporting (focus on
outside/inside directors)

Authors Theoretical Influence of Influence of inside

framework outside directors directors on voluntary
on voluntary disclosure
disclosure

Frias-Aceituno Agency No association –

et al. (2013)
Fiori et al. Agency Low association –
(2016)
Alfiero et al. Agency – –
(2017)
Girella et al. Agency No association –
(2019) Signalling
Cost of Capital
Political Cost
Proprietary
Costs
Institutional
Stakeholder
Garcia- Resource- Positive –
Sanchez dependence
et al. (2019)
Suttipun and Legitimacy and No association –
Bomlai agency
(2019)
Lai et al. (2016) Legitimacy – –
Melloni et al. Agency No association –
(2016)
Busco et al Stakeholder No association –
(2019)

Source: Author’s elaboration.

Conclusion
In this chapter the main developments in the academic and profes-
sional literature on the link between corporate governance and volun-
tary disclosure have been discussed. More specifically, an investigation
of the most significant studies in four key lines of enquiry, namely,
corporate governance and voluntary disclosure, corporate governance
and sustainability reporting, corporate governance and intellectual
capital, and corporate governance and integrated reporting have been
conducted. It is possible to note that no homogeneous views exist on
which are the corporate governance mechanisms that are considered
 Corporate Governance, voluntary disclosure  55
the most influential in the implementation of voluntary forms of cor-
porate reporting.
Furthermore, in regard to the relationship between corporate gov-
ernance and integrated reporting, the review of the literature con-
ducted reveals that the following two are the topics that still appear in
need for a more profound and solid understanding:
The nexus between the financial state of companies first adopting
integrated reporting and their corporate governance, and in particu-
lar the professional backgrounds of their boards, which is useful to
shed light also on the “impression management assumption” put for-
ward in the literature reviewed that resumes a linkage between the
adoption of this form of accountability and the difficult financial sit-
uation of companies.
The nexus between the decision to uptake integrated reporting by a
company and the composition of its board and the associated profes-
sional background and expertise (Gray and Nowland, 2013).
The above two issues seem to be quite open in the literature and
subject to different theoretical interpretations and empirical analyses.
Therefore, they will be the focal points of the analysis that will be car-
ried out in the next chapter.

Note
1 Although the author is aware that several studies have also been devel-
oped on (a) the linkages between the disclosure of corporate governance
practices and the extent of corporate voluntary disclosure and (b) corpo-
rate governance and the quality of voluntary disclosure, these topics are
outside the scope of this book.

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4 From theory to practice
Board characteristics,
financial performance, and
the adoption of integrated
reporting

Research design
As previously illustrated, although voluntary disclosure is today more
and more relevant, it is the board that has the last word (Chen and
Jaggi, 2000) in deciding which and how much information an organi-
sation should disclose (Eng and Mak, 2003). The effective functioning
of the board is determined by its composition (Mizruchi, 2004), which
can influence company financial performance as well as the quantity
and quality of voluntary disclosure, including the possible adoption
of integrated reporting. The diversity of the board is defined as the
disparity of the characteristics presented by its members (Robinson
and Dechant, 1997). The composition of the board can be described in
various terms, such as the members’ value system, nationality, gender,
professional background, or by the size of the board (Van der Walt
et al., 2006; Kang et al., 2007).
In this chapter, an empirical analysis of the relationships between
board characteristics on the one side, and company financial perfor-
mance and the adoption of integrated reporting on the other side, is
carried out through recurring to a two-stage statistical model. In the
first step, a multivariate regression analysis is run to examine the as-
sociation between the board’s professional experience and financial
performance. In the second step, a non-parametric multivariate per-
mutation test is conducted to understand how the professional profiles
of directors can influence the decision to uptake this innovative re-
porting tool. The results emerging from the two-stage empirical anal-
ysis are then discussed.

Hypothesis development
The choice of variables has not been addressed in a traditional way, i.e.
by selecting variables typically used in the agency theory context, such
 From theory to practice  63
as the size of the board, its age and gender proportion, the presence of
outside vis-à-vis inside directors or others (Van der Walt et al., 2006;
Kang et al., 2007: for further reference see Chapter 3).
In this analysis, it was decided to go deeper and further refine the
distinction between Insiders and outsiders by investigating the pro-
fessional background of each outside board member in terms of re-
sources they can provide to the company. To do so, the board member
classification developed by Hillman et al. (2000) in the context of the
Resource-Dependence theory, drawn on Baysinger and Zardkoohi
(1986), and then used also by Markarian and Parbonetti (2007) and
Enache and Garcia-Meca (2019), was adopted. Members of the board
were thus classified into four general categories, namely, Insiders,
Business Experts, Support Specialists, and Community Influentials.
As a consequence, four variables assuming the value between 0 and 1
were defined, where each variable represents the proportion of board
members of a company that belongs to one specific category.
Insiders (Ins) are board members who are or have been employees
of the company under investigation. They tend to have a profound
knowledge of the company and its strategic orientation, and, thus,
they provide the board with their specific experience and information
of ‘inside nature’. This category of board members is not unique to
Resource-Dependence theory, but it has also been used in the context
of Agency theory, and more specifically, to investigate the effective-
ness of the monitoring function of boards and generally the linkages
with firm performance. In this respect, Mace (1986) points out that
Insiders, thanks to their in-depth knowledge about the organisation
and its competitive environment, do embody a fundamental source of
information for outside directors. This can be true also in situations
where outside directors should evaluate investment decisions (Raheja,
2005), or when CEOs do not want to reveal their private information
(Laux, 2006; Adams and Ferreira, 2007). The presence of Insiders on
the board, even though recently added to it, can also represent a val-
uable choice in terms of CEO appointment (Hermalin and Weisbach,
1988). Drymiotes (2007) demonstrates how the presence of Insiders
into the board can facilitate the monitoring process. Although Insid-
ers are often seen as lacking independence in that they are supposed
or expected to act in the best interest of the CEO, rather than in that of
shareholders, he shows that the need to include them in the corporate
governance mechanisms can arise endogenously. In fact, Insiders can
ensure that the board can commit to a monitoring role and, thus, align
shareholders’ and managers’ interests.
As to the influence of Insiders on firm performance, Klein (1998)
shows that the presence of Insiders on finance and investment
64  From theory to practice
committees can positively influence performance, especially in terms
of long-term investment decisions. Other studies have demonstrated
that the existence of Insiders in the boardroom is or not significant in
terms of profitability (Bhagat and Black, 2001 or equally significant as
that of outside directors (Wagner III et al., 1998).

H1A: The presence of Insiders is positively associated with corporate

financial performance

The presence of Insiders has demonstrated to be a key feature also in

regard to accounting change and innovation. Using accounting con-
servatism as a proxy for resistance to change, it is possible to observe
that academic literature offers mixed results. Ahmed and Duellman
(2007) hold that the existence of this category of directors is negatively
associated with conservatism, while outside directors have a positive
influence. On the contrary, Burke and Logsdon (1996) affirm that
managers might not want to incur in costs related to CSR disclosure
as it may require time to recover them. Looking at the dynamics tak-
ing place in the boardroom, Nicholson et al. (2017) show that outsiders
and Insiders do not always behave being pushed by opposite interests.
Indeed, they can both act to balance control and, ultimately, collab-
orate. Considered the ambiguity of the results so far achieved, as well
as the innovative connotation that can be associated with integrated
reporting, the following hypothesis is formulated:

H1B: The presence of Insiders is negatively associated with the adoption

of integrated reporting

According to Baysinger and Zardkoohi (1986) and Hillman et  al.

(2000), the category of outside directors which has been widely used in
the Agency theory context tends to be quite myopic in capturing the
different nuances that this role can assume. Hence, those authors pro-
pose a further refinement of outsiders into Business Experts, Support
Specialists, and Community Influentials.
Business Experts (BE) are managers, senior officers, or directors
who have worked or are still working in other for-profit organisations.
They tend to have quite a strong expertise on competitive environ-
ments and strategies, decision-making, and problem-solving, even
though not at a specialist level but at a general management one.
They represent a communication channel among companies and also
vis-à-vis the wider community of stakeholders. Therefore, they em-
body a sounding board for ideas. In this respect, they can provide or-
ganisational legitimacy to the company. Having experience of other
 From theory to practice  65
companies operating in similar industries (Jones et  al., 2008) allows
Business Experts to understand better the risks and opportunities a
company is facing (Dass et al., 2014; Wang et al., 2015), and to provide
the organisation with strategic information, they being able to advise
it in addition to monitoring it.

H2A: The presence of Business Experts is positively associated with cor-

porate financial performance

Thanks to the knowledge and experience they might have acquired in

other companies that could have already started their journey towards
the adoption of integrated reporting, the following hypothesis is also
adopted.

H2B: The presence of Business Experts is positively associated with the

adoption of integrated reporting

Support Specialists (SS) are those who have specific expertise in a

specialised industrial, scientific, or professional field, such as law-
yers, scientists, and accountants. Accordingly, they differ from Busi-
ness Experts in that they lack general management skills (Markarian
and Parbonetti, 2007), but their key function relies on supporting the
board with their set of specialised skills (Baysinger and Zardkoohi,
1986) that are not always internally available. They can improve the
capacity building functions of companies (Markarian and Parbonetti,
2007) and have a wide range of connections. They may be professionals
in capital markets and R&D in intensive industries, acting as decision
supporters (Baysinger and Zardkoohi, 1986) and providing specialisa-
tions to the management of the company (Hillman et al., 2000; Jones
et al., 2008). Their understanding of the sector and their competences
can help them assess, and sustain decisions on, many aspects of finan-
cial reporting. Furthermore, Krishnan and Visvanathan (2008) claim
that there is evidence that Support Specialists with legal experience
benefit the businesses in which they operate. In this sense, they will
provide companies with specific knowledge and skills, which can help
evaluate the many aspects of the legal implications and improve the
quality of information available to the board. Support Specialists also
make available specialised connections and capabilities that generally
facilitate companies’ access to finance. In light of the above, the fol-
lowing assumption is devised:

H3A: The presence of Support Specialists is positively associated with

corporate financial performance
66  From theory to practice
Similarly to the presence of Business Experts, on the basis of the ac-
quired specialistic knowledge that they have, another hypothesis can
be put forward. Indeed, integrated reporting might be perceived as
generating a unique reporting practice, though some of its character-
istics and information can also be found in sustainability reports. Its
adoption can entail a specialistic type of expertise, especially in its
first year of implementation. Accordingly, the following hypothesis
can be formulated:

H3B: The presence of Support Specialists is positively associated with the

adoption of integrated reporting

The Community Influentials are non-executive/outside directors such

as current or retired politicians, clergy members, and leaders of social
organisations. They provide a valuable non-commercial perspective
on the proposed company actions and strategies (Hillman et al., 2000),
and have knowledge, experience and connections relevant to the or-
ganisation’s external environment. Their expertise with the commu-
nity is intended to help society avoid costly missteps when its actions
could inadvertently conflict with the interests of those forces (Hillman
et al., 2000). Political ties are significant in highly developed institu-
tional settings (Cooper et al., 2010). Community Influentials can have
beneficial effects in this respect. They can help the company to navi-
gate an uncertain and complex environment by providing expertise in
bureaucratic and legislative procedures (Goldman et al., 2009). They
bring linkages to the company and with the company’s competitive en-
vironment offer their experience on, and create connections to, groups
and community organisations (Michelon and Parbonetti, 2012). As a
result, they can give valuable non-commercial perspectives, provide
legitimacy, protect stakeholder interests in board discussions, and
monitor industry decisions.
Despite these characteristics, the choice has been not to include the
variable referring to this fourth category in the model here utilised,
but to focus instead on the above illustrated three board member cate-
gories that are more closely and effectively linked to professional busi-
ness expertise.
In addition to the collected variables just described, three control
variables have been used for the construction of the model, and they
are board size (Boardsize), calculated as the number of directors sit-
ting on the board in the year of the first implementation of integrated
reporting; company size (Size), calculated as the logarithm of total as-
sets; and the Industry Profile (IND), a dummy variable which assumes
 From theory to practice  67
value 0 if a company belongs to the service sector and value 1 if a
company belongs to the manufacturing industry, thus simplifying the
categorisation adopted by Chan et al. (2014).

Sample selection
In order to run the first stage of the analysis, the sample selected in-
cludes only firms that started adopting integrated reporting in the pe-
riod 2015–2019. The reason to focus on this time interval is twofold.
First, this period is related to the two strategic phases that the IIRC
has implemented, namely, the Breakthrough Phase (2015–2017), which
was aimed to achieve a meaningful shift in the adoption of the In-
ternational <IR> Framework, and the Momentum Phase (2018–2020),
which had the objective to prepare the context for the global adoption
of the <IR> Framework. Second, the choice of that time interval is
motivated by the acute difficulty of effectively reconstructing the com-
position of pre-2015 company boards years. This is principally due to
the fact that data have to be hand-collected as they are not available
on databases with the needed level of granularity.
The organisations included in the sample have been selected through
systematic research on the companies’ website, starting from the list of
reports provided by the <IR> Reporters section of the <IR> Examples
Database of the International Integrated Reporting Council (IIRC –
www.integratedreporting.org). For each of these companies, the first
voluntarily produced integrated report was examined to control that
it effectively corresponded to an integrated report. In this respect, the
decision has been to retain only those documents that explicitly stated
that they were following the International <IR> Framework. This
sample selection phase resulted in the identification of 39 organisa-
tions worldwide, with the exception of South African companies that
are required to prepare integrated reports when listed on Johannes-
burg Stock Exchange.
The sample was further refined by dropping those organisations
with missing Datastream and Thomson Reuters Asset4 accounting
data that are mainly those which are not listed. It was decided to
analyse only listed companies for two reasons. First, within a small
company, the leading force is not in the hands of the board of di-
rectors, but it is often concentrated in one person, who can be the
managing director, the owner, the CEO, the CFO, etc. Second, listed
companies have data which are publicly and periodically published,
and which are easily accessible and available to carry out the research
here planned.
68  From theory to practice
This selection phase resulted in a final sample of 39 organisations
across eight industries and 14 countries. The sample comprises firms
from six different continents, with the larger proportion of integrated
reports’ 2015–2019 adopters coming from Europe (nearly 60% of com-
panies selected) and mainly France. The industrials and the finan-
cial sector have the largest proportion of firms adopting integrated
reports (44%), followed by utilities (18%) and technology (13%) (see
Table 4.1).
This sample was then used to conduct the first phase of the empir-
ical analysis, testing the relationship between board composition and

Table 4.1 Sample distribution by country and industry

Panel A: Distribution by country

Country 2015 2016 2017 2018 2019 Total

Australia 0 0 0 0 1 1
Belgium 0 1 0 0 0 1
Brazil 0 0 0 1 0 1
France 2 3 4 3 0 12
India 0 1 1 2 0 4
Italy 1 2 0 1 0 4
Japan 4 0 0 1 2 7
Netherlands 1 0 0 0 0 1
Norway 0 0 0 1 0 1
Philippines 0 1 0 0 0 1
Spain 0 1 0 0 0 1
Switzerland 0 1 1 0 0 2
Turkey 0 1 1 0 0 2
United States 1 0 0 0 0 1
Total 9 11 7 9 3 39

Panel B: Distribution by industry

ICB industry 2015 2016 2017 2018 2019 Total

Basic materials – – – – – –
Consumer goods 1 – 2 1 – 4
Consumer services – 1 – 2 – 3
Financials 1 3 2 2 – 8
Health care 1 1 – – – 2
Industrials 3 3 1 1 1 9
Oil & gas 1 – – – – 1
Technology 1 1 1 1 1 5
Telecommunications – – – – – –
Utilities 1 2 1 2 1 7
Total 9 11 7 9 3 39
 From theory to practice  69
characteristics and financial performance of companies adopting inte-
grated reporting for the first time in the period 2015–2019.
To run the second stage of the investigation inherent in the relation-
ship between board features and experience and the actual decision
of adoption of integrated reporting, there was introduced a match-
paired control sample that is composed of firms that do not adopt in-
tegrated reporting in the period 2015–2019. The second group of IR
non-adopters (matching sample) has been formed on the basis of the
following criteria: industry sector classification (based on the Indus-
try Classification Benchmark-ICB system created by Dow Jones and
FTSE); geographical region (same country); corporate size (based on
the volume of assets). The final combined sample is thus composed by
78 international listed companies (see Appendix 1).
For each of the organisations included in one of the two samples
(main and control), the board composition and the professional back-
ground of its members in the year of adoption of integrated reporting
were examined. For example, the 2015 board of directors was analysed
if the company chose to adopt the integrated report at the end of that
year or early 2016. The related integrated reports was produced and
released during the 2016 financial year, as a consequence, then, of the
2015 board decision. The choice to collect data in different years de-
pending on the time of the decision of adopting integrated reporting is
relevant to actually understand which attributes were most significant
in deciding to implement this new reporting practice.
Data were hand-collected from the integrated reports (for <IR>
adopters) and/or the annual reports or websites (for non-IR adopters)
of each company. In particular, the biography of each board member
was read, and individuals were classified accordingly.
This overall investigation resulted in classifying 898 profiles: 464 for
group 1 (<IR> adopters), and 434 for group 2 (non-IR adopters). Sub-
sequently, the percentage weight of the three board member categories
here considered has been calculated for each company in proportion
to the total number of the directors sitting on its board.

Statistical analysis
As a first stage of the empirical analysis, a multivariate logistic re-
gression model to evaluate if and to what extent corporate governance
characteristics can be associated with corporate financial perfor-
mance has been run.
Applicating this model to our variables, we obtained the following
system of equations:
70  From theory to practice

INS = β1,0 + β1,1BSIZE + β1,2 ROA + β1,3LEVERAGE + β1,4MKTVAL +

 β1,5SIZE + β1,6IND + ε1

BUSEXP = β2,0 + β2,1BSIZE + β2,2 ROA + β2,3LEVERAGE +

 β2,4MKTVAL + β2,5LOGTAS + β2,6IND + ε2
SPEC = β3,0 + β3,1BSIZE + β3,2 ROA + β3,3LEVERAGE +
 β3,4MKTVAL + β3,5LOGTAS + β3,6IND + ε3
INS = the proportion of Insiders sitting on the board
BUSEXP = the proportion of Business Experts sitting on the board
SPEC = the proportion of Support Specialists sitting on the board
BSIZE = the total number of directors sitting on the board in the
year of implementation of an integrated report
ROA = earnings before interests and taxes on assets
LEVERAGE = total debt to total assets
Market-to-Book Value Ratio = market value of equity divided by
book value of equity at fiscal year end
SIZE = logarithm of total assets
IND = a dummy variable which assumes value 0 if a company be-
longs to the service sector and value 1 if a company belongs to the
manufacturing industry

The descriptive statistics for the variables of the model are presented
in Table 4.2.
In the companies that have started implementing integrated report-
ing, the mean of Business Experts present in the board is equal to 42.4%,
that of Insiders to 29.7%, while that of the Support Specialists to 20.1%.
On average, then, Business Experts are the most represented group
among board members, followed by Insiders and Support Specialists.

Table 4.2 Descriptive statistics

Variables N Mean Median Std. Min p25 p75 Max

dev.

INS 39 0.297 0.200 0.255 0.000 0.118 0.333 0.833

BUSEXP 39 0.424 0.429 0.221 0.000 0.302 0.564 0.857
SPEC 39 0.201 0.200 0.152 0.000 0.091 0.302 0.583
BSIZE 39 0.119 0.110 0.036 0.060 0.095 0.140 0.220
ROA 39 5.050 3.860 4.066 0.310 2.175 6.830 15.330
LEVERAGE 39 51.32 22.43 111.092 0.200 7.750 42.700 681.25
MKTVAL 39 2.096 1.720 1.380 0.480 1.155 2.420 6.410
SIZE 39 5.021 4.812 1.099 2.848 4.319 5.610 8.468
IND 39 0.462 0.000 0.505 0.000 0.000 1.000 1.000

Source: Author’s elaboration.

 From theory to practice  71
At first sight, these results can be linked to the fact that Business Ex-
perts, having already worked in and for other organisations, may have
experienced the adoption of integrated reporting. Similarly, Insiders
know about the organisation and, therefore, it might be easier for them
to understand and leverage on the integrated thinking that lies at the
heart of integrated reporting. Support Specialist might act as consult-
ants, thanks to their specific knowledge and competences.
As for the economic, governance, and industry-independent vari-
ables utilised, i.e. Company Size, ROA, Leverage, Market-to-Book
Value Ratio, Board Size and Industry Profile, the average ROA is
5.050, which means a high average level of profitability for the sample
companies. The mean leverage is 51.32, indicating that more than half
of the capital of the selected companies belongs to third parties. The
average size of the sample companies is 5.021. The board of directors is
composed of an average of 11.9 members. The Market-to-Book Value
Ratio is 2.096 and the Industry Profile is 0.462, indicating a slightly
lower proportion of companies belonging to manufacturing as com-
pared to services.
Table 4.3 presents the results of the Pearson’s correlation matrix
among the variables used in the multivariate regression model de-
scribed above. It is possible to note that the variables that show the
highest correlation index with Insiders are size (as the logarithm of
total assets), ROA, leverage, and Industry Profile. This fact may sug-
gest in an anticipated way, the statistical significance of these four
variables vis-à-vis the phenomenon investigated. As for Business Ex-
perts, size appears to be strongly, but negatively correlated, which
may indicate a non-significant relationship between the two varia-
bles. Of course, these preliminary findings need to be further tested
through a more sophisticated analysis that will be developed in the
following section.

Table 4.3 Pearson correlation matrix

Explanatory variables INS BUSEXP SPEC

BSIZE –0.049 –0.162 0.084

ROA 0.238 –0.004 –0.194
LEVERAGE 0.244 –0.148 –0.176
MKTVAL 0.041 0.079 –0.050
SIZE 0.303 –0.262 0.000
IND 0.318 –0.180 0.019

Source: Author’s elaboration.

72  From theory to practice
Multivariate regression analysis’ results
As mentioned above, the first stage of the analysis is aimed to under-
stand whether and to what extent board characteristics can be asso-
ciated with the economic and financial performance of companies
adopting integrated reporting. By applying the system of equations
mentioned above, the following results were obtained (Table 4.4).
Since the Market-to-Book Value Ratio (MKTVAL) has the less sig-
nificant coefficient estimates and none of them is statistically signifi-
cant, it has been removed from the model.
The new reduced model (without MKTVAL) is compared with the
previous full model. The p-value of the Pillai’s test is equal to 0.658,
confirming that the null hypothesis, according to which the coeffi-
cients of MKTVAL are equal to zero, cannot be rejected (Table 4.5).
Interestingly, the results emerging from the second, reduced model
show that concerning the Insiders, the regression coefficient estimates
of ROA, leverage, and industry profile are still significant, but in a
weaker form. In other words, when the variable Market-to-Book Value
Ratio is eliminated from the model, also the importance of compa-
ny’s profitability, leverage, and industry profile, as predictors of the

Table 4.4 Results of the multivariate analysis examining the

relationship between board characteristics and
economic and financial performance (full model,
p-values in brackets)

Explanatory variables INS BUSEXP SPEC

Intercept –0.487 1.033 0.336

(0.088)* (0.001)*** (0.105)
BSIZE 2.247 –2.329 –0.638
(0.073)* (0.063)* (0.475)
ROA 0.038 –0.019 –0.016
(0.006)*** (0.154) (0.105)
LEVERAGE 0.001 –0.001 0.000
(0.007)*** (0.113) (0.130)
MKTVAL –0.045 0.029 0.014
(0.213) (0.419) (0.581)
SIZE 0.058 –0.045 0.002
(0.108) (0.207) (0.948)
IND 0.168 –0.094 0.005
(0.036)** (0.231) (0.929)
R-squared 0.409 0.216 0.115

*significant at 0.10, **significant at 0.05, ***significant at 0.01.

Source: Author’s elaboration.
 From theory to practice  73
Table 4.5 Results of the multivariate analysis examining the relationship
between board characteristics and economic and financial
performance (reduced model, p-values in brackets)

Explanatory variables INS BUSEXP SPEC

Intercept –0.577 1.091 0.365

(0.040)** (0.000)*** (0.067)
BSIZE 2.105 –2.237 –0.592
(0.093)* (0.070)* (0.500)
ROA 0.029 –0.013 –0.013
(0.013)** (0.233) (0.112)
LEVERAGE 0.001 –0.001 0.000
(0.011)** (0.133) (0.140)
SIZE 0.072 –0.054 –0.003
(0.036)** (0.106) (0.899)
IND 0.135 –0.072 0.016
(0.073)* (0.322) (0.764)
R-squared 0.379 0.200 0.106

*significant at 0.10, **significant at 0.05, ***significant at 0.01

Source: Author’s elaboration.

proportion of Insiders, diminishes, implying that the significance for

Insiders of accounting-derived measures becomes less relevant, be-
cause there is no consideration of the unaccounted intangible capital
proxied by the Market-to-Book Value Ratio. The statistical signif-
icance of traditional performance measures that are linked to cor-
porate accounting seems to decline in the eyes of investors when not
considering the role of intangible capital that is not shown in financial
statements. These findings also appear to suggest a certain level of sys-
temic relationships amid the different performance measures, at least
in the perspective of Insiders sitting on the board.
Possible problems related to multicollinearity have also been
checked (Table 4.6). It can be observed that the correlations do not
take large absolute values. Hence, multicollinearity does not seem to
be an issue. This is confirmed by the Variance Inflation Factors (VIFs)
because all the values are less than 5. Furthermore, the graphs of re-
siduals, the assumptions about the errors of the multivariate regres-
sion model (normal distribution with null mean, uncorrelation and
homoscedasticity), seem to be plausible (see Appendix 2).
In terms of results of the multivariate regression, it is possible to
note that as far as the variable of Insiders is concerned, there is a
positive and significant association with the majority of the consid-
ered variables, namely ROA, leverage, size, board size, and industry
74  From theory to practice
Table 4.6 Matrix of correlations between explanatory variables and
variance inflation factors (VIFs)

BSIZE ROA LEVERAGE MKTVAL SIZE IND

BSIZE 1.000 –0.470 –0.219 –0.201 –0.066 –0.046

ROA 1.000 –0.252 0.608 –0.162 0.249
LEVERAGE 1.000 –0.143 0.167 –0.171
MKTVAL 1.000 –0.322 0.374
SIZE 1.000 0.064
IND 1.000

VIF 1.561 2.305 1.308 1.985 1.215 1.248

Source: Author’s elaboration.

profile. This appears to be consistent with previous studies, which

have shown that the presence of these professional skills on the board
can positively influence the performance of companies (Kiel and Ni-
cholson, 2003; Drymiotes, 2007). To put it differently, Insiders, who
are the members of the board, who are or have been employees of the
company, and who can contribute to a considerable extent to make
decisions about its strategic orientation, influence the investments
and, therefore, company performance. The in-depth knowledge that
they have on the organisation appears to be a fundamental asset in
driving its business success. In the sample under study, this emerges
from findings to be particularly true for those companies that have
a bigger size and larger boards and that operate in industries that in
general have a larger presence of intangibles (services) than tangibles
(manufactured). These results are consistent with both the steward-
ship and Resource-Dependence theories. According to the former, In-
siders represent the board member category that is supposed to lead to
superior corporate performance as they are seen as those who do not
act against shareholders, but that is interested in maximising profit. If
Resource-Dependence theory is adopted as a conceptual lens, this is
also true, as Insiders are those that can provide the board with a pro-
found knowledge on the company.
As regards the dependent variable of Business Experts, the multi-
variate linear regression has found a significant but negative relation-
ship with board size and no association with the other variables. It
appears that the smaller the size of the board is, the highest is the
proportion of members with this professional background. This re-
sult could be linked to the increased need for Business Experts in
smaller boards to reach a level of knowledge and experience about the
 From theory to practice  75
company’s industry and the operating context. Moreover, the uncor-
relation found for this board member category with firm performance
is consistent with the findings of previous studies (Kiel and Nicholson,
2003) according to which the relationship between Business Experts/
outside directors and firm performance is dependent on the underly-
ing theoretical viewpoint adopted. If the Agency view of the firm is
assumed, results have indicated that we would expect a positive and
significant association between these variables, in that outside direc-
tors are called on to protect the interests of shareholders.
The Support Specialists show no significant relationship with any
of the investigated variables. This lack of statistical connection could
be attributed to the professional background of this category of board
members, which varies greatly depending on the type of sector in which
a company runs its activities. To be true, this type of members of com-
pany boards are those who have specific expertise in a particular area,
e.g. if a company operates in a mechanical sector, probably engineers
specialised in that sector will be sitting on the board. Despite these
members could be relevant for business success and understanding the
opportunities and possible strategies of the company, their presence
does not necessarily affect the performance of organisations adopting
an integrated report.

Multivariate non-parametric permutation test

Thus far, the relationship between corporate governance characteris-
tics and the financial performance of companies adopting integrated
reporting have been examined. Now, the relationship that may exist
between the knowledge and experience of the board members and the
decision to implement integrated reporting as a new accountability
tool for the company is investigated through a non-parametric meth-
odology, i.e. the multivariate permutation test (Pesarin and Salmaso,
2010; Bonnini et al., 2014), owing to the low numerosity of the organi-
sations composing the main sample.
The hypotheses under investigation are the following:

H 0 : INS1 d= INS2  ∩ BUSEXP d 

1 = BUSEXP2  ∩ SPEC d 
1 = SPEC 2 

H1 : INS1 d≠ INS  ∪ BUSEXP

2
d 
1 ≠ BUSEXP2  ∪ SPEC d 
1 ≠ SPEC 2 

INSj: proportion of Insiders in group j,

BUSEXPj: proportion of Business Experts in group j,
76  From theory to practice
SPECj: proportion of Support Specialists in group j,
with j = 1 → adoption of IR, and j = 2 → non adoption of IR

For each company in the main sample (group 1), the following has
been considered:

 DINS     
 j   δ1   ε j1 
 DBUSEXPj  =  δ2  +  ε j2 
     
 DSPEC j   δ3   ε j3 
   

that can be denoted with the following matrix notation

Yj = δ +ε j,

where Yj is the random vector of the three response variables for the
j-th company, δ the vector of constant parameters that represent the
effects of the adoption of the integrated reporting on the proportion of
Insiders, Business Experts, and Support Specialists, respectively, and
εj is a random vector whose components have null mean and median,
with j = 1,2,…,39.
The hypotheses of the problem can be denoted as follows:

H0 : δ = 0
H1 : δ ≠ 0
 From theory to practice  77
In other words, under the null hypothesis, δ1 = δ2 = δ3 =0 and, un-
der the alternative hypothesis, at least one of the three parameters is
not null. Under the null hypothesis, the assumption of exchangeability
holds, and the sign of the response variables (proportion differences)
can be either positive or negative with equal probability 0.5. A suitable
choice for the test statistic of each partial test is the sample mean of
the differences.
From the descriptive statistics of Table 4.7, it is possible to observe
that the average presence of Support Specialists in the boards of com-
panies belonging to the main sample (group 1) is higher than that in
the matched companies of the control sample (group 2), while the op-
posite is on average true for the other two board member categories
(Insiders and Business Experts). This first result of the non-parametric
model seems then to suggest that Support Specialists may play an im-
portant, differential role in companies adopting integrated reporting.
The combined permutation test with the Fisher combination func-
tion has then been applied. The global p-value is equal to 0.001. Hence,
there is strong evidence in favour of the alternative hypothesis that the
board composition of the two groups (main and control) of companies
is not equal.
In order to control the family-wise error rate for the multiplicity of
the test and avoid the inflation of the significance level of the overall
test, the p-values of the three partial tests are adjusted according to
the Bonferroni-Holm rule (see Table 4.8).

Table 4.7 Descriptive statistics of the proportion differences between the

treated group (companies that adopt integrated reporting) and the
control group (companies that do not adopt integrated reporting)

N Mean Median Std. dev. Min p25 p75 Max

INS 39 –0.047 0.014 0.283 –0.929 –0.147 0.125 0.510

BUSEXP 39 –0.102 –0.133 0.311 –0.720 –0.298 0.078 0.583
SPEC 39 0.129 0.091 0.178 –0.433 0.000 0.262 0.500

Source: Author’s elaboration.

Table 4.8 P-values of the partial tests

INS BUSEXP SPEC

Unadjusted p-value 0.314 0.048 0.000

Adjusted p-value 0.314 0.096* 0.000***

*significant at 0.10, **significant at 0.05, ***significant at 0.01.

Source: Author’s elaboration.
78  From theory to practice
Hence, the significance of the global test can be mainly attributed to
the partial test on the proportion of Support Specialists but, to a lesser
extent, also to the percentage of Business Experts. In other words, the
board composition of the two groups of companies is different princi-
pally for the proportion of Support Specialists.
The possibility of confounding effects due to the different compo-
sition of the two samples in respect to the financial and dimensional
situation has been investigated by applying the propensity score ap-
proach (Rosenbaum and Rubin, 1983). A logistic regression analysis
with the dummy variable denoting the belong-ness to the main sample
(group 1) as the dependent variable has been performed. According to
the output of this analysis, none of the explanatory variables affects
the binary response. Accordingly, confounding effects due to these
factors can be excluded, and the two samples are well-balanced and
the associated results sound.
The possibility that the financial year could take the role of con-
founding factor has also been considered. Hence, we have stratified the
dataset by distinguishing data relating to the annual periods before or
of 2016 (period 1) and the annual periods after 2016 (period 2). Basi-
cally, the overall problem has been broken down into six partial test-
ing problems (two periods multiplied for three response variables, i.e.
the categories of board members considered). The final global p-value
is still 0.001, this confirming again the robustness of the global test
in respect to the strategy of decomposition of the problem into sub-
tests. The partial p-values are reported in Table 4.9. As to the choice
of 2016 as a time divide for the dataset, this is amenable to the fact
that until 2017, i.e. the year in which the 2016 integrated reports were
produced, the European Directive no. 95/2016 was not enforced in the
Member States, this generating a level playing field between European
and non-European companies as to the sustainability and integrated
reporting. This situation, of course, has changed for 2017 integrated
reports that have been produced in 2018, since the coming into force
of the national laws implementing the above Directive created a dif-
ferent legal and operational context for the large listed companies of
the European Union, which represent nearly 60% of the main sample
analysed (see Table 4.1).
Thus, we have a clear confirmation that the significance of the above
global test can be mainly attributed to the partial tests on the rate of
Support Specialists in the companies of the main sample (group 1).
This finding appears to be true for both the periods, but it is more
marked for the most recent years (after 2016 integrated reports). In
other words, the board composition of the two groups of companies
 From theory to practice  79
Table 4.9 P-values of the partial tests after stratification by financial year

INS BUSEXP SPEC

≤ 2016 >2016 ≤ 2016 >2016 ≤ 2016 >2016

Unadjusted 0.056 0.915 0.287 0.083 0.010 0.001
p-value
Adjusted p-value 0.223 0.915 0.573 0.248 0.050** 0.007***

*significant at 0.10, **significant at 0.05, ***significant at 0.01.

Source: Author’s elaboration.

is different primarily due to the proportion of Support Specialists.

This result is more evident in particular for the most recent years (i.e.
after 2016). This could be amenable to the fact that, as previously
mentioned, European companies in 2017 started to comply with the
Non-Financial Reporting Directive and hence, this category of out-
side directors could be of support to the board also in this respect.

Conclusion
While the presence of Insiders and Business Experts has shown to be
related to a positive performance by companies that adopt integrated
reporting, when it comes to the decision to adopt this innovative re-
porting practice, it is the proportion of Support Specialist that is key,
together with that of Business Experts, though to a lower extent. By
providing specific knowledge, the Support Specialists become the
agents of change in the accountability practices (Gray and Nowl-
and, 2017; Ramón-Llorens et al., 2019). This finding is consistent with
those previous studies which have found that consultants can act as
“purifying actors” in introducing accounting change in organisations
(Christensen and Skaerbaek, 2010). Not only consultants are those
more able to foster innovative reporting practices at a country level, as
it has been the case for Germany with the introduction of Wissensbi-
lanz for SMEs (Girella and Zambon, 2013), but their role is fundamen-
tal also at a micro, organisational level (Chiucci and Giuliani, 2017)
and even more when they enter company boardrooms. In this context,
they do not have to be perceived as those who only pursue their own
interests (Qu and Cooper, 2011), but Support Specialists are capable
of sustaining and favouring the value creation process of the organi-
sation and its communication (through integrated reporting) towards
shareholders and stakeholders.
Similarly, Business Experts, by having a thorough knowledge about
other organisations – that might have already adopted integrated
80  From theory to practice
reporting – and the industry in general, can advise the company on the
opportunities that this reporting practice can offer. From the results
of the non-parametric test, board Insiders seem to play only a (statisti-
cally) marginal role in pushing reporting innovation, perhaps because
of a function played of preservation of the status quo.
Finally, from a theoretical perspective, the results obtained suggest
the need for a more ‘ecumenic’ view when addressing conceptually the
role of boards towards accountability innovation, such as integrated
reporting. Indeed, the findings cannot be framed within one single
theory, be it Agency, Stewardship, or the Resource-Dependence, but
they appear to support a complementary view of these theoretical ap-
proaches. Directors in the boardroom seem to play different roles ac-
cording to their expertise and backgrounds, which, on the whole, can
‘satisfy’ the underlying conceptual premises and logics of the three dif-
ferent frameworks. Indeed, Support Specialists, and to a lesser extent
Business Experts, can play a distinctive function vis-à-vis accounta-
bility innovation that is consistent with the Resource-Dependence
theory, while Insiders’ role could be more aligned with the assump-
tions of the Stewardship theory. In addition, as shown in Table 4.2,
the presence of outside directors accounts for about 70% of the total
board members in the companies analysed, indicating their capacity
to protect shareholders’ interests as predicated by the Agency theory.

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5 Boards, reporting, and
long-term value creation
Towards an integrated view

Conclusions
This book aimed to start shedding light on the relationship between
board composition and features, company financial performance, and
the adoption of a new accountability form – i.e. integrated reporting –
that has made its appearance around ten years ago. Integrated report-
ing is implemented by companies on an entirely voluntary way (except
for South Africa) and is based on an international principles-based
Framework.
This type of accountability vehicle is characterised by the fact that
it considers not only financial capital as a resource, but also other five
capitals available to an organisation, i.e. human, intellectual, natural,
social and relationship and manufactured. This report seeks to give
providers of financial capital as well as other stakeholders a 360- degree
representation of a company’s strategy, governance, performance,
and future outlook through an overview that combines financial and
non-financial resources.
The integrated report intends to demonstrate not only how value
has been created in the past, but also how this value creation process
can continue in the short, medium, and long terms. This form of re-
porting should be grounded on integrated thinking, which allows to
plan strategies and evaluate performance employing a systemic view
of the organisations.
The complexity of integrated reporting and the associated demand
for resources that it requires to be implemented is remarkable. There
are many aspects to consider, such as time, experts who help the com-
pany set up this report, costs, and the organisational fatigue related to
its preparation. Hence, one may wonder why many companies all over
the world spend time and resources in dealing with this report, since
it is not mandatory, apart from South Africa (where the release of an
84  Boards, reporting, and value creation
integrated report is required by the King IV Corporate Governance
Code to companies listed at the Johannesburg Stock Exchange). To
put it differently, one might ask which are the most preeminent rea-
sons that prompted companies to make this choice.
When considering the pervasive connection that integrated report
has with company strategic aspects, capitals, and future, it is easy to
detect that one of the key determinants to uptake this innovative form
of disclosure is corporate governance. Indeed, the way companies are
governed influences their direction of travel. Precisely in this sense, it
is the board of directors that has the power to decide if and to what
extent a company could adopt new reporting practices. It is the board
that has the last word.
Accordingly, after delineating the core theoretical and practical
aspects evidenced in the literature on voluntary information and in-
tegrated reporting (Chapter 1), the relationship between corporate
governance and this new disclosure practice has been investigated by
examining the different national Corporate Governance Codes that
have started aligning to the principles of sustainability and integrated
reporting (Chapter 2). Beginning with the South African case, it has
been observed that, although there are different ways to approach
integrated reporting, the adoption of a language relating to the im-
portance of ‘stakeholder relationships’, ‘risks and opportunities’, and
‘value creation’ have represented for many Codes the way to do it.
A review of the academic and professional literature, and in par-
ticular of that investigating corporate governance and its interaction
with various areas of disclosure (voluntary, CSR, intellectual capital,
and integrated reporting), has shown that a homogeneous view has
not been reached as yet on what are the critical determinants able to
explain why a company might undertake a process of adoption of a
new accountability tool such as integrated reporting.
More specifically, as a result of this literature review, two are the
issues that still appear in need of a more profound and solid under-
standing. The first issue is the nexus between the financial health of
companies adopting for the first time integrated reporting and their
corporate governance and, in particular, the professional backgrounds
of their boards. A better understanding of this aspect would be useful
to shed light also on the “impression management assumption” put
forward in the literature reviewed, that assumes a linkage between the
adoption of this form of disclosure and a hypothetical difficult finan-
cial situation of the adopting companies. The second issue regards the
correlation between the decision to implement integrated reporting
by a company and the composition of its board and the associated
 Boards, reporting, and value creation  85
professional backgrounds. The above two problems seem to be quite
open in the literature and subject to different theoretical interpreta-
tions and empirical analyses.
In light of the above issues, an empirical analysis was undertaken to
investigate the composition of the boards of directors concerning its
association with corporate financial performance and the decision of
companies to adopt integrated reporting for the first time as a disclo-
sure form.
As for the analysis of the board of directors, many scholars have
taken into consideration board features such as age, gender, size, CEO
duality (if the Chairman and the CEO correspond to the same per-
son), level of education, etc. Furthermore, researchers have relied on
the general distinction between inside and outside directors, which is
typical of the agency theory perspective. This study goes deeper by
also investigating the professional background of each member of the
boards of the companies selected.
The analysis conducted is based on a main sample of 39 compa-
nies that have all produced voluntarily an integrated report for the
first time in the period 2015–2019 (thus no South African company
was included in the sample), for a total of 464 board members’ pro-
files analysed (plus other 434 profiles of the control sample). The data
were hand-collected from the integrated reports available on the web
for each company. The directors have been subsequently grouped into
the four categories advanced by Hillman et al. (2000), namely, Insid-
ers, Business Experts, Support Specialists, and Community Influen-
tials. The Insiders are the employees or the former employees of the
company considered; the Business Experts are the (retired or current)
managers of other companies; the Support Specialists refer to peo-
ple with an expertise in a specific area, such as lawyers, scientists, ac-
countants, business consultants, etc.; and the Community Influentials
relate to those individuals having an influence capacity on the commu-
nity, such as politicians, ambassadors, social entrepreneurs, etc. How-
ever, it has been decided to include in the statistical analysis only those
categories that might be strictly related to the presence of professional
expertise pertaining to companies. Hence, the category ‘Community
Influential’ has been dropped.
After classifying each board member in one of the three remaining
categories, a two-stage statistical analysis has been carried out.
First, a multivariate regression has shown that as far as the cate-
gory of Insiders is concerned, there is a positive and significant as-
sociation with the accounting-derived metrics illustrating corporate
financial performance (Return On Assets (ROA), Leverage) and the
86  Boards, reporting, and value creation
control variables ‘Board Size’ and ‘Industry Profile’. This result seems
to imply that those members of the board who are or were employees
of the company and, thus having in-depth knowledge about it, tend to
have a positive influence on its business achievements. As regards the
Business Experts, the multivariate regression has found no positive
and significant relationship with the accounting-based performance
metrics, this implying that the existence of outside directors who also
work in other companies does not necessarily benefit the company.
The only significant but negative association that has been found for
Business Experts is with board size: the larger the board is, the less
is the proportion of this category of directors. This outcome could
be amenable to the possible willingness of companies not to be ex-
posed to the phenomenon of interlocking directorates. In other words,
companies first adopting integrated reporting might be interested in
demonstrating that a variegated range of actors provide their strategic
direction. However, when reducing the size of the board, the presence
of Business Experts becomes fundamental. The presence of Support
Specialists is instead not correlated in any way with the corporate fi-
nancial performance of companies adopting integrated reporting.
A multivariate permutation statistical test has been conducted to
examine the relationship between boards’ composition and profes-
sional characteristics, and the choice to implement this accountability
device. Amid the insightful results, the presence of outside directors,
and specifically of Support Specialists as well as Business Experts, has
emerged as key for influencing the adoption of integrated reporting.
This connection can be attributed to the features of both those board
categories. In fact, these members of the boards tend to have both
an expertise of a specific professional area and general management
culture. In other words, the decision to implement integrated report-
ing appears to rely essentially on the existence in the boardroom of
a certain level of professional knowledge, expertise, and understand-
ing of this accountability tool. This result is further proof that more
diversified boards with different characteristics in terms of role and
professional skills can contribute in a decisive way – even though with
different weights – to the choice of adopting integrated report in a
company on a voluntary basis.
In summary, it can be pointed out that integrated reporting requires
a significant level of professional expertise for being understood and,
then, implemented. The emerging need for specialistic knowledge and
experience in the boardroom in order to adopt integrated reporting
could yield to the observation that this decision is likely not to be con-
ceived as a greenwashing exercise. The results here obtained appear in
 Boards, reporting, and value creation  87

Corporate Financial
Insiders
Performance

Board composition Integrated Reporting

and characteristics Business Experts
Adoption

Support Specialists

Figure 5.1 Empirical results.

Source: Authors’ elaboration.

fact to show that such specialistic expertise increases the level of dis-
closure. Hence, in the company cases analysed, voluntary disclosure
does not take symbolic forms (Hopwood, 2009; Cho et al., 2010). These
outcomes are further confirmed by the analysis of the financial perfor-
mance of those companies that have first adopted integrated reporting
(Figure 5.1). In general, these organisations do not show particular
criticalities from a financial performance perspective, as demonstrated
also by the descriptive statistics of Table 4.7 in Chapter 4.
Therefore, the findings of this research seem to depart from those
of previous studies that have conceived integrated reporting mainly as
being a component of an impression management strategy embraced
by managers to positively influence shareholders perceptions (Melloni
et al., 2017).
From the analysis conducted in this study, it is possible to draw
some more general conclusions. As repeatedly pointed out, in the last
ten years, a new accountability means has made its appearance on the
voluntary disclosure stage, i.e. integrated reporting.

• The role of boardrooms in adopting this innovative reporting

practice can be hardly underestimated. Indeed, integrated report-
ing produces effects on strategic, managerial, organisational, and
cultural aspects of company life, and this cannot be considered
outside the boards’ scope of attention and action. On the other
hand, it can be observed that boards of companies of similar size,
industry, and located in the same countries or regions may denote
different attitudes towards integrated reporting.
88  Boards, reporting, and value creation
• In general terms, these mindsets are likely to be amenable to the
prevailing company culture and, in particular, its orientation to-
wards transparency, accountability, and reporting innovation.
The organisational inertia of a company, primarily represented by
the Insider members of the boards, may constitute an obstructing
factor to the taking up of a new reporting tool and culture.
• The general company attitude vis-à-vis integrated reporting seems
then to be fundamentally linked to corporate governance and,
more specifically, the culture instilled in the company by its board
of directors and the cultural and professional orientation and ex-
perience of some of its members.
• However, the present research has revealed that the attitude of
boards is a combination of all the different cultural approaches
and professional backgrounds of the people composing those
boards. In this respect, hence, if we want to understand better
the decision of a company to uptake the innovative practice of
integrated reporting, we should not only comprehend the general
culture of a company, but also dig into the dynamic blend of the
specific cultures of its board members. In other words, corporate
boards should not be conceived as monolithic and unsegmented
bodies, but as being articulated by many different souls.
• From a theoretical perspective, the analysis has shown that the
confrontation between the three most relevant conceptual ap-
proaches regarding corporate governance (Agency, Stewardship,
and Resource-Dependence theories), thus far competing in the
arena of conceptual ideas for framing the role of corporate boards,
may be to some extent overcome in the name of a wider and more
integrated view of today role of boardrooms. The findings of this
research appear to provide us with a more multifaceted vision of
board functions that goes beyond the traditional understanding
of boards as the mere watchdog of shareholders (Agency theory).
The decision itself by the board to implement integrated report-
ing in a company shows its willingness to embrace a broader per-
spective with an evolutionary interpretation of its own role. This
more proactive conceptual view of boards’ work incorporates the
need to take into account the information relationships also with
other stakeholders and the osmosis with the external environment
and its impinging factors (Resource-Dependence theory), while
preserving – especially through Insiders, i.e. current or former
company managers – a careful eye on the equilibrated develop-
ment of the organisation in the short, medium, and long terms
(Stewardship theory).
 Boards, reporting, and value creation  89
Policy implications, study limitations, and future
research paths
From a policy perspective, most of the Corporate Governance Codes
examined in Chapter 2 call for the presence of outside directors. How-
ever, the findings of this study have demonstrated that even more spe-
cific indications can be included in these Codes in terms of knowledge
and expertise these actors could and should have, if a more transpar-
ent and a stakeholder attitude is to be thrusted in companies’ boards
in the near future.
The research does not lack some limitations, especially from a meth-
odological perspective. The most relevant one is that the analysis has
been conducted on a reduced number of observations, i.e. the com-
panies (outside South Africa) that have started adopting integrated
reporting in the period 2015–2019. Moreover, only the year of the first
adoption of this reporting practice has been considered here, and not
the following periods.
In this respect, the book also indicates some future research paths.
First, a similar examination could be expanded in terms of both the
number of ‘first adopters’ and years investigated. Actually, a longitu-
dinal exercise could provide more insights into the role of the board
of directors in promoting non-financial reporting innovation. As an
example, a comparison of the composition of the board before and
after this adoption could further enhance the advisory function of this
crucial company body.
Second, the role of the board of directors in encouraging the
adoption of integrated reporting could also be investigated in the
context of other theories, beyond agency, stewardship, and Resource-
Dependence approaches, if not through an integration of these theo-
retical frameworks.
An additional line of enquiry can be represented by further refine-
ment of the disaggregation of the professional composition of the
boards of directors of companies that have decided to adopt inte-
grated reporting. This can be done by taking into consideration also
the so-called ‘grey directors’, which are those who result from having
linkages with the company through business deals and/or family rela-
tionships (Baysinger and Butler, 1985; Weisbach, 1988) and the ‘com-
munity influentials’ (Fernández-Gago et al., 2017). This phenomenon
has demonstrated to be quite strong in countries and regions such as,
e.g. India and Asia. The inclusion of the influence of the CEO could
also represent a valuable addition (Jain and Jamali, 2016; Ramón-
Llorens et al., 2019).
90  Boards, reporting, and value creation
When trying to understand the role of the board in introducing
new accountability practices, research and practitioners could aim
to depart from the traditional view that shareholders and managers
have necessarily to pursue different goals and that the only function
of directors is that of monitoring and exerting a fiduciary duty for
shareholders aimed at trying to align these diverse, almost compet-
ing, interests. Directors seem not only act as investor watchdogs, but
their role can be more comprehensive and potentially include also
their ability to provide a whole set of resources to the organisation, of
both tangible and intangible nature. They can then act as ‘guarantors
and stabilisers’, capable of reducing environmental uncertainty for the
sake of all stakeholders, thus playing a guarantee function for all the
internal and external categories of actors affecting and being affected
by corporate activity.
After all, echoing the recent article by Margaret Blair (2020), Emer-
ita Professor of Law at Vanderbilt Law School, “corporations are gov-
ernance mechanisms, not shareholders toys” […]

The [corporations’] original function was to provide for the gov-

ernance of joint enterprises, developments, and projects that re-
quire the participation of a variety of different types of investors
and other participants, and are expected to provide benefits for
many different customers, clients, and communities. All hope to
gain some advantage from interacting with the corporation.

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Appendix 1
List of organisations in the main
sample and in the control sample

Main sample Control sample

A2A Edison Rsp

Abn Amro Van Lanschot Kempen
Agl energy Ausnet services
Atos Dassault systemes
Axa Cnp assurances
Ayala Rockwell land
Bic Maisons Du Monde
Capgemini Alten
Clariant EMS chemie
Cnim groupe Aurea
Ely Lilly Biogen Inc
Garanti bank Akbank
Givaudan Sika
Hitachi chemical Shin-Etsu chemical
Iberdrola Endesa
Ibiden Meiko electronics
Icade Unibail Rodamco we stapled units
Itausa Banco Do Estado Do Rio Grande Do Sul B Pn
Jsw energy limited Power grid corporation of India
Kering LVMH
Kyocera Nitto Kogyo
Lintec Toda Kogyo
Mahindra & Mahidra Ashok Leyland
Maruti Suzuki Bajaj Auto
Mindtree HEXAWARE TECHS
Mowi Salmar
Poste Italiane Astm
Sanofi Virbac
Scsk Itochu Techno-solutions
Snam Saipem
Societe Generale Bnp Paribas
Solvay TESSENDERLO GROUP
Suez Derichebourg
Thales Safran
94  Appendix 1: List of organisations
Main sample Control sample

Toyota Tsusho Marubeni

TS TECH Co. NGK Spark Plug
Tskb Sekerbank
Unipol Cattolica Assicurazioni
Worldline Euronext
Appendix 2
Analysis of residuals
 INS BUSEXP SPEC

0.4
0.3

0.4
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Residuals
Residuals

Residuals
0.0
96  Appendix 2: Analysis of residuals

-0.1

-0.2

-0.2
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-0.4
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.2 0.3 0.4 0.5 0.6 0.05 0.10 0.15 0.20 0.25

Predicted values Predicted values Predicted values

Figure A .1 Residuals versus predicted values.

 INS BUSEXP SPEC

2.5
2.5
2.0 2.5

2.0
2.0
1.5

1.5
1.5

Density
Density
Density
1.0

1.0
1.0
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0.5
0.5

0.0
0.0
0.0

-0.4 -0.2 0.0 0.2 0.4 0.6 -0.4 -0.2 0.0 0.2 0.4 -0.3 -0.2 -0.1 0.0 0.1 0.2 0.3 0.4

Residuals Residuals Residuals

Figure A . 2 Histog rams of residuals.

Appendix 2: Analysis of residuals  97
 INS BUSEXP SPEC

0.4
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0.4
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Sample Quantiles
Sample Quantiles
Sample Quantiles
98  Appendix 2: Analysis of residuals

-0.1

-0.2

-0.2
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-2 -1 0 1 2 -2 -1 0 1 2 -2 -1 0 1 2

Theoretical Quantiles Theoretical Quantiles Theoretical Quantiles

Figure A .3 Nor mal QQ -plot of residuals.

Index

Note: Bold page numbers refer to tables; italic page numbers refer to figures
and page numbers followed by “n” denote endnotes.

Abeysekera, I. 48 Blair, Margaret 90

accountability 5, 10; form 83; tool 1, board characteristic 45, 51, 62, 72,
15, 21, 53, 75, 84, 86 72, 73
accounting-based performance board composition 37, 38, 42, 45, 62,
metrics 86 69, 78–79, 83
accounting-derived metrics 85 board members: Business Experts
African National Congress 21–22 64–66; classification of 63;
agency theory 2, 3, 36, 63, 80 Community Influentials 66;
Aggestam, M. 14 Insiders 63–64; Support Specialists
Ahmed, A. S. 64 65–67
Akhtaruddin, M. 38 board of directors 71, 84; analysis
Alfiero, S. 51 of 85; composition of 22, 38, 43,
Allegrini, M. 13, 39 49; function of 3; independence
Angelidis, J. P. 45 of 44; mandate of 22; ownership
‘apply or explain’ approach 24 structure of 38; role of 31, 89
Arcay, M. R. B. 40 boardrooms: Insiders in 3, 64;
Armstrong, Philip 22 pecialistic knowledge and
ASX (Australian Stock Exchange) experience in 86; role of 80, 87, 88;
Corporate Governance Council 30 women in 50
Australia 30–31; sustainability Bomlai, A. 52
reporting 45; voluntary disclosure Bonferroni-Holm rule 77
in 40 Breakthrough Phase (2015–2017),
Australian Corporate Governance IIRC 67
Code 33 Burke, L. 64
Busco, C. 52
Baldini, M. A. 48 Business Experts (BE) 64–66, 70, 71,
Bangladesh, intellectual capital 74, 75, 78–80, 85, 86
reporting 49 Business Responsibility and
Barako, D. G. 40 Sustainability Report 28
Barth, M. E. 52 Business Responsibility Report
Baysinger, B. D. 63, 64 (BRR) 27, 28
100 Index
capital 12; financial 3, 10, 12, 27, 83;
forms of 10; intellectual 5, 7, 14,
15, 35, 46; productive 10
capital markets: associated with
quality of integrated reporting 52;
professionals in 65; supranational
dimension of 6
CEO duality 38, 39, 41, 44, 47–49,
52, 85
Cerbioni, F. 47
Chan, M. C. 67
Cheng, M. 14
Chief Sustainability Officer (CSO) 44
community influential and
sustainability disclosure 43
Community Influentials 66, 85
companies: in Bangladesh 43–44; in
China 38; corporate governance
code of 15; economic of 72;
environmental performance on
42; in Europe 51, 79; of European
Union 78; export-oriented 44;
financial health of 84; financial
performance of 72, 75, 85, 87;
financial state of 55; governance
structure and disclosure practices
21; in Hong Kong 36, 38; Irish 39;
in Italy 8, 39; positive performance
by 79; private 24, 37; separation
between ownership and control
2; in Singapore 37; in South
Africa 9, 67; in Spain 45; and
stakeholders 32
company financial performance 83
confounding effects 78
control variables 37, 66–67, 86
corporate boards 4, 88; quantitative
and qualitative composition of 1
corporate disclosure 4, 5, 40, 42;
evolving factor of 6; integrity of
31; ownership structure and board
composition 37
corporate financial performance 85;
Business Experts associated with
65; Insiders associated with 64;
Support Specialists associated with
65–66
corporate governance 2, 16;
component of 11; and disclosure
21; disclosure, voluntary disclosure,
and 5–9; evolution of roles 4;
innovative form of disclosure 84;
and integrated reporting 13–15,
51–53, 54; and intellectual capital
reporting 46–50, 50; and reporting
5; role in disclosure practices 36;
and sustainability reporting 42–45,
46; and voluntary disclosure 35–41,
41; Western-style model of 44
Corporate Governance Codes 21, 26,
27, 31, 33, 35, 84, 89
Corporate Governance System
Practical Guidelines (CGS
Guidelines) 27
corporate information 38; degree of
homogeneity of 6
corporate reporting 2, 10, 28, 42, 55
corporate social responsibility (CSR)
5, 42
corporate voluntary disclosure 55n1
CSR disclosure 45; corporate
governance and 45, 46
CSR-related information 45
decision-making 26, 36, 44
descriptive statistics 70, 70–71,
77, 77
disclosure 5–9; corporate governance
and 21; of intellectual capital
46; of social information 43; of
value creation 46; of voluntary
information 37; see also corporate
disclosure; voluntary disclosure
Donnelly, R. 39
Dow Jones Sustainability Index
(DJSI) 43
Drymiotes, G. 63
Duellman, S. 64
Enache, L. 63
Eng, L. L. 37, 39
Enron 42
environmental information 43
Environmental, Social and
Governance (ESG) 42
Europe: intellectual capital reporting
47; sustainability reporting 45
European Directive 7, 8, 78
European Union 7, 78
explanatory variables 74, 78

export-oriented companies 44
external governance mechanisms 5
Fama, E. F. 36
family-wise error rate 77
Fasan, M. 53
financial capital 3, 10, 12, 27, 83
financial information 6, 37
financial markets 6
financial performance 1, 45, 62, 72,
72, 73, 75, 87
financial reporting 4, 5, 11
Financial Reporting Council
(FRC) 29
financial resources 83
Financial Services Acts of South
Africa 22
Financial Services Agency 25–27
financial statements 6, 46–47, 49,
73; non-financial and financial
information in 37
Fiori, G. 51
Fisher combination function,
permutation test with 77
for-profit organisations 64
Frias-Aceituno, J. V. 51
Friedman, Milton 2, 14
Fuente, J. A. 45
García-Meca, E. 63
García-Sánchez, I. M. 51
gender diversity 51, 53
Gerwanski, J. 53
Ghazali, N. A. M. 14
GHG disclosure 44
Girella, L. 51
Global Reporting Initiative (GRI)
standards 45
Greco, G. 13, 39
‘grey directors’ 89
Guerrero-Villegas, J. 45
Guidelines for Investor and Company
Engagement 27
Gul, F. A. 37
Haji, A. A. 14
Hidalgo, R. L. 48
Hillman, A. J. 63, 64, 85
Hong Kong, voluntary disclosure in
36, 38
Index  101
Ho, S. S. 36, 38
Huafang, X. 38
hypothesis development 62–67
Ibrahim, N. A. 45
IC see intellectual capital (IC)
ICD see Intellectual Capital
Disclosure (ICD)
IIRC see International Integrated
Reporting Council (IIRC)
IIRC Examples Database 52, 53
IIRC Pilot Programme 51
“impression management
assumption” 84
India 27–28
industry sector classification 69
information asymmetry 7, 8, 14, 51
Insiders (Ins) 63–64, 70–73, 79, 80, 85
intangibles-related information 50
integrated decision-making
process 11
integrated reporting 9, 83, 84, 86,
87, 87; adoption of 89; Business
Experts associated with 65; and
corporate governance 13–15;
corporate governance and
51–53, 54; emergence of 9–13;
Insiders associated with 64–65;
Support Specialists associated
with 66–67
integrated sustainability reporting 23
integrated thinking 71, 83; emergence
of 9–13
intellectual capital (IC) 5, 7, 14, 15,
35, 46
Intellectual Capital Disclosure (ICD)
48; extent and quality of 49
intellectual capital reporting
46–50, 50
internal control 14, 24, 32, 39
International <IR> Framework 10,
11, 28–30, 67
International Integrated Reporting
Council (IIRC) 9–10, 67
International Organization
of Securities Commissions
(IOSCO) 27
Ireland, voluntary disclosure in 39
Italy 31–32; intellectual capital
reporting 48
102 Index
Japan 25–27 Markarian, G. 63
Japanese Corporate Governance Market-to-Book Value Ratio
Codes 33 (MKTVAL) 71–73
Japan Stewardship Code 25–27 Meckling, W. H. 36
Jensen, M. C. 36 Melloni, G. 52
Jianguo, Y. 38 Michelon, G. 42
Jizi, M. 45 Ministry of Economy, Trade and
Johannesburg Stock Exchange 14, 15, Industry (METI) 27
22, 23, 52, 67 Mio, C. 53
Jusop, M. 49 Momentum Phase (2018–2020),
IIRC 67
Keenan, J. 14 Money, K. 42
Kenya, voluntary disclosure in 40 Mulcahy, M. 39
Khan, A. 43 multivariate non-parametric
King Code III 23, 24 permutation test 75–79, 77, 79
King Code IV 14, 15, 24 multivariate permutation statistical
King, Mervyn E. 15, 21–23 test 86
‘King Report’ 22 multivariate regression analysis
Klein, A. 63 72–74, 72–75, 85, 86
knowledge-based economy 46 Muttakin, M. B. 49
Krishnan, G. V. 65
Kuzey, C. 53 Nairobi Stock Exchange 40
Kılıç, M. 53 national corporate governance code 9
National Guidelines on Responsible
Lai, A. 52 Business Conduct (NGRBC) 28
La Porta, R. 2 Nicholson, G. 64
legal entity ownership 38 non-executive directors (NEDs) 38
Leung, S. 37 non-financial information 7, 23, 37
Liberatore, G. 48 non-financial reporting 11; formats 4
Li, J. 47 non-financial resources 83
Lim, S. 40 “Non-Financial Statement” 8
linkages 1, 2, 55n1 non-parametric methodology 75, 77
logistic regression analysis 78 non-parametric multivariate
Logsdon, J. M. 64 permutation test 62
Lone, E. J. 44 non-parametric test 80
long-term: accountability tool 21; null hypothesis 72, 77
sustainability 10; value creation 5,
29, 42; vision of IIRC 10 Operating & Financial Review
(OFR) 31
Mace, M. L. 63 opportunistic behaviour 3, 7, 8, 36
Makhija, A. K. 40 organisations list, in main sample and
Mak, Y. T. 37, 39 control sample 93–94
Malaysia 28–29; intellectual capital outcomes-based corporate
reporting 48–49 governance 24
Malaysian Code on Corporate outsiders 63, 64
Governance (MCCG) 28 ownership structure 37, 38
Mallin, C. 43
management strategies literature 52 Parbonetti, A. 42, 47, 63
managerial ownership 36, 38 partial tests, p-values of 77, 77–78, 79
Mandela, Nelson 22 Patelli, L. 39

Patton, J. M. 40
Payne, Nigel 22
Pearson’s correlation matrix 71, 71
permutation test, with Fisher
combination function 77
Peters, G. F. 44
policy 89–90
political ties 45, 66
Portugal, intellectual capital
reporting 48
Prado-Lorenzo, J. M. 42
Prencipe, A. 39
principles-based approach 11
productive capital allocation 10
professional background 69, 74,
84–85
Public Entities Act of South
Africa 22
Public Finance Management Act of
South Africa 23
p-values, of partial tests 77, 77–78, 79
Ramón-Llorens, M. C. 45
Rao, K. 45
Remuneration Committee 32
research 89–90; academic 5; into
broader stream of academic and
professional literature 1–2; design
62; on voluntary disclosure 9
residuals: histograms of 97; normal
QQ-plot of 98; vs. predicted
values 96
resource-based theory 50
Resource-Dependence theory 3, 63,
74, 80
risk management system 32
‘risks and opportunities’ 33, 84
Rodrigues, L. L. 48
Romi, A. M. 44
sample selection 67–69, 68
Sarbanes–Oxley Act (SOX) 43
Schepers, H. 42
Securities and Exchange Board of
India (SEBI) 27, 28
Securities Commission of
Malaysia 28
shareholder 3, 39, 47, 80, 90; interest
of 36; protection of rights and
interests 4
Index  103
Shleifer, A. 2
Singapore, voluntary disclosure in 37
social information 43; disclosure
of 43
South Africa 1, 9, 33, 83–84; King
Code experience 21–24
Spain: intellectual capital reporting
48; sustainability reporting 45;
voluntary disclosure in 40
Stacchezzini, R. 52
stakeholder 7–8, 14, 23, 26, 51;
attitude 89; communication with
43; pressure exerted by 44
‘stakeholder relationship’ 30, 33, 84
state ownership 38
statistical analysis 69–70; descriptive
statistics 70, 70–71; multivariate
non-parametric permutation
test 75–79, 77, 79; multivariate
regression analysis 72–74, 72–75;
Pearson’s correlation matrix 71, 71
Stewardship theory 3, 74, 80
Stoxx Europe 600 Index 52
“strategic non-imitative” 9
study limitations 89–90
‘substitute relationship’ 37
Support Specialists (SS) 65–67, 70,
71, 75, 77–80, 85, 86
sustainability information 43
sustainability-related information 42
sustainability reporting 42–45, 46
Suttipun, M. 52
Taliyang, S. M. 49
Tejedo-Romero, F. 48
Tilt, C. 45
Tokyo Stock Exchange 26
UK 29–30; sustainability reporting
45; voluntary disclosure in 39
UK Corporate Governance Code 29
UN Sustainable Development Goals
(SDGs) 24
US companies 44
value creation 2, 4–7, 9, 10, 24, 25,
27, 29, 33, 84; disclosure of 46;
sources of 47
variance inflation factors (VIFs)
73, 74
104 Index
Vázquez, M. F. M. 40
Vishny, R. W. 2
Visvanathan, G. 65
Vitolla, F. 53
voluntary accountability 13
voluntary communication
practices 7
voluntary disclosure 5–9, 13, 35,
87; in Australia 40; corporate
governance and 35–41, 41; in
Ireland 39; in Kenya 40; provision
of 14; quantity and quality of 62;
in Singapore 37; in Spain 40; types
of 8–9; in UK 39
voluntary non-financial disclosure 7
voluntary reporting 9
Wang, R. 52
Western-style model of corporate
governance 44
Wilkinson, Richard 22
Williamson, O. E. 36
Wong, K. S. 36, 38
WorldCom 42
XBRL 7
Zardkoohi, A. 63, 64